Surge in slaughter prices fails to rub-out big losses in grainfed trading budget

Jon Condon, 25/07/2016

THERE’S been another big surge in forward slaughter cattle prices in our latest 100-day grainfed trading budget calculated this morning. But any benefit to the outcome has been washed-away by equally large rises in feeder steer price on the other side of the equation.

There have been some dramatic shifts in price variables applied in our latest trading budget, based on 450kg feeder feeders entering a typical Downs feedlot today, and exiting for slaughter after 105 days on November 7 (see full list of variables at base of page).

But once again the effects of those shifts in input prices are tending to cancel each other out.

We’ve arrived at a trading loss of $96 in our latest budget today, continuing our worst-ever sequence of results recorded in our regular breakevens this year.

Feeders rise 20c/kg

Sandalwood feedlot cattle handling areaOn the supply side, we’ve lifted feeder steer price another 20c/kg since our previous budget calculated back on 28 June, taking the price to yet another record high of 360c/kg. That values our typical 450kg flatback feeder at $1620, another $90 higher than our last report a month ago.

The feeder price now sits 70c/kg higher than where it was just nine weeks ago, on May 19. This time last year, the same steer was worth just 280c, up 80c/kg or $360 in value since.

As clearly reflected in the current EYCI indicator performance, the recent price movement is being impacted both by the unusually wet weather since early June, combined with the underlying shortage of cattle being offered to the market, caused by the general drought-driven herd decline.

Effectively, backgrounders and lotfeeders are now competing on the same cattle.

As we highlighted last month, heavy feeders matching our ideal spec weight continue to be very hard to find, with many feedlots broadening their intake specs to take cattle much lighter than what they traditionally would.

Current tightness in supply means some feeders are currently buying cattle intended for 100-day markets in an unprecedented range from lows around 300kg to 500kg liveweight, in trying to secure numbers. That’s because cost of gain, as outlined below, is much cheaper than purchase price, on a liveweight basis.

Some of those lighter steers will go into backgrounding programs on grass or from now on, oats, while others will go straight onto feeding programs to help fill pens, at a time when occupancy is presenting as a challenge. Lighter cattle going straight only feed are likely to be challenged, however, through maturity and intake capacity, meaning performance in those cattle may be tested.

The fact that the price premium for lighter cattle is currently quite modest, suggests there is some nervousness that buying, backgrounding and feeding those cattle for turnoff in say, six months’ time might be questionable, profit wise.

It’s difficult to gauge occupancy levels in feedyards at present, with ALFA’s quarterly survey for the period ended June 30 still some three weeks or more away. But anecdotally, it appears there is some pen space starting to open-up in a few of the larger yards, both custom-feeders and corporate. That’s because there just isn’t the volume of cattle now being offered that there was previously – regardless of buy-price.

Ration price unchanged

The only variable we’ve left unchanged in today’s trading budget is ration price, which remains where it was a month ago at $320/t. Worth noting, though, is the evidence that there’s a big spread evident in the market – anywhere from $300/t to $340/t, subject to each yard’s current grain position, its location, and other factors.

Certainly feedgrain prices are trending lower, with reports today of Downs wheat for July/August delivery at $248/t and barley at $232/t. Most lotfeeders would now be expecting ration prices to lower towards the latter stages of 2016, especially as pen occupancy declines, and custom-feeding margins trim down.

Could ration price slip below $300/t? It’s possible, and if it occurs, it would be the first time we’ve seen it in this data-set since April 2013. That expectation is on the back of both crop size, but also some reduction in demand from feedlots, due to cattle supply.

The $320/t ration price in today’s trading budget delivers a total feeding cost of $501, and a cost of gain at 239c/kg.

At today’s nominated feeder steer purchase price, total production cost is $2231. That’s up another $92 on our last budget a month ago, and an extraordinary $322 on just nine weeks ago.

Breakeven now above 630c

The variables described above deliver a breakeven figure in today’s budget of a record 632c/kg – up another 26c from a month ago.

Worth highlighting, though, is that this budget is calculated on a stable year-round feeding performance, producing a gain of 2kg/day. But certainly, feeding cattle during the back end of winter, heading into spring, often produces better than average performance.

But as was seen during the recent wet weather events since early June, performance of cattle on feed was compromised by unusually wet conditions over winter in a number of yards.

While there has been a monumental surge on the feeder steer price since our last budget, the sell-side movement is arguably almost as dramatic.

Grainfed forward price grids this week for November, week-one delivery, sit at an all-time record 605c/kg. That’s up another 25c/kg since our last budget in late June.

The previous high-point was a 600c/kg figure recorded briefly in September last year, when numbers were starting to look tight, as kills showed signs of decline.

The current figure represents a phenomenal 105c/kg rise in price in just 12 weeks, which on our standard 356kg carcase, represents a surge in value of no less than $378.80 a head.

As large as that forward slaughter figure is, in real terms it has only kept pace with the negative impact of the larger rise in feeder steer purchase price, which has risen 70c in just two months.

By any standards, the two figures highlighted above are massive movements, and arguably, complete unprecedented in the history of grainfed cattle production in Australia.

Based on the variables discussed above, it means that today’s trading budget delivers a loss on our current proposition of $96 a head.

It’s not the worst result we’ve ever recorded (-$114 in late April, driven hard by a deteriorating slaughter price at the time), but it’s heading up there. In fact in the five trading budgets Beef Central has calculated since the start of the year, the average lost has been more than $90 – easily the worst sustained period of results we’ve ever seen.

At this stage at least, with most feedlots having come off a sustained period of high occupancies and good trading results, they appear determined to try to keep yards as full as they can. But can it last?

Spot market comparisons

Looking at 100-day grainfed cattle heading for slaughter this week, forward contracts written on those cattle back in April were priced around 550c. Compare that with the spot market this week for 100-day grainfeds, which is in the 575-600c/kg range, and it means processors are currently up to $100 better-off on those forward contracted cattle. In contrast, just two months ago, the forward contracted cattle would have been looking expensive, compared with the spot market.



Beef Central’s regular 100-day grainfed breakeven scenario is based on a standard set of representative production variables, ex Darling Downs. It is built on a feeder steer of 450kg liveweight, fed 105 days; 356kg dressed weight at slaughter; ADG of 2kg; consumption 15kg/day and a NFE ratio of 7.5:1 (as fed); $25 freight; typical implant program. Bank interest is included. It is important to note that variations exist across production models (feed conversion, daily gain, mortality, morbidity, carcase specification); from feedlot to feedlot; and between mobs of cattle. Equally, there can be considerable variation at any given time in ration costs charged by different custom-feed service feedlots. Click here to view an earlier article on this topic. For a more specific performance assessment on a given mob of cattle, consult with your preferred custom feeder.


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