Lotfeeding

Trading loss eases in latest 100-day grainfed budget

Jon Condon, 04/04/2012

 

There was a solid improvement in results in Beef Central’s latest fortnightly breakeven and trading profit projection on 100-day grainfed cattle carried out yesterday, although numbers still remain in negative territory.

Yesterday’s budget based on our standard 100-day grainfed beast placed on feed April 2 and exiting the feedyard in July, week-three, suggests a negative $20 trading result. That’s an encouraging $30 improvement on the identical analysis carried out a fortnight earlier, on March 20.

The key influences were a modest easing in feeder cattle price, combined with strengthening in forward pricing on finished grainfed ox heading into the second half of the year.

The latest result is among the best seen (or perhaps better described as ‘least worst’, in a profitability sense) since the recent high-point back in late-October last year when we forecast a +$1 trading result. The breakeven has been in positive territory only once since Beef Central launched the calculation back in May last year.

The big difficulty in choosing input variables for yesterday’s calculation was in feeder steer price. That current feeder market is arguably as ‘choppy’ as it has been for two years or more, with price offers from different lotfeeders moving in different directions. Reasons are difficult to pin-down, but may be due to variance in opinions about the shape of the grainfed market heading into the second half of 2012. The lack of clear market signals is probably contributing to that.

Following the strengthening in demand for feeders late last year there was a correction in price, and more recently still, a partial recovery. But prices currently continue to move up and down in a shallow range, on an almost daily basis.

For the purpose of today’s breakeven, we have settled on 197c/kg as a representative feeder figure, 3c/kg less than a fortnight ago. Having said that, some southern Queensland market participants even yesterday were bidding above that assumed feeder price, while others were slightly below. So the figure may represent more of a ‘mid-point’ than a market adjustment.

Our chosen feeder steer buy price (flatback crossbred steer ex Darling Downs) of 197c values him at $886, softening a little from $900 last time, and a long way from our year-opening, January 9 steer value of $967.

While grain prices have weakened a touch over the past month, finished ration price in yesterday’s calculation remains the same at $245/t, using all new-season, predominantly white grains.

That gives a total production cost yesterday calculated at $1360, a $16 decline from March 22, due to the softer feeder steer purchase price. It also factors in a 1pc mortality rate in the yard and typical implant program.

All that presents a breakeven figure in the mid-380s/c/kg dressed weight, down from 390c/kg a fortnight ago, for 100-day grainfed steers going on feed yesterday and closing-out July, week three.

Export meatworks forward pricing on 100-day grainfed cattle are currently around 380c/kg, firming a little on our last breakeven, but still a long way from forward sale prices of 400c/kg applied in our January 9 assessment.

The impression is that trading conditions are currently a little easier for export processors, with a flow of cattle and a little more margin in the business than what was seen earlier. This may be instilling a little more comfort for business being done on a forward basis.

Historically, the annual low-point in the finished market is May/June, typically creeping up through the spring and into the summer season.   

Today’s forward slaughter price for mid-July, placed over our breakeven figure, indicates a trading loss of about $20 a head.

So where do things go from here? Unless the margin in the feeder steer price versus the grass-finished ox option is maintained, it’s hard to see significant numbers flowing back into feed yards over the next three months, given the season we are now facing.

Attention will now focus on the March quarterly feedlot survey, due to be posted in coming weeks.

Anecdotally, some major integrated lotfeeder/processors are reducing numbers on feed, and the overwhelming opinion across the trade is that industry-wide numbers will be significantly lower in the March result.

The next significant turning-point is likely to be the arrival of first winter frosts to set-back pasture quality, forcing some producers to seek alternatives. That is only likely to put downwards pressure on feeder cattle price, given current levels of demand, currency position, and other factors.

Looking back a year…

Feeder steers this time last year were 10-15c/kg better than where they sit today, at +210c/kg, while forward slaughter rates were above 400c.

At the same time the currency this time last year was similar as today (US102c). Over the same timeframe, the US meat market, as the world’s floor price for beef, has increased 10pc or more in value.

So why is the market currently performing as it is? The biggest chunk of the answer is in the substantial impact that higher US competitive export pressure is having in our higher-value North Asian markets like Japan and Korea.

A year ago, Australia still pretty well had North Asia to itself, whereas now, the US is building trade momentum for selected cuts it can dispose of, at highly attractive rates. That impact, alone, has probably cost the Australian beef producer 30c/kg on today’s export ox, one respected Beef Central contact suggested yesterday.

Is Beef Central’s breakeven representative?  

Readers occasionally ask how ‘representative’ Beef Central’s fortnightly grainfed trading budget calculation is.

We can report that after our last budget forecast a fortnight ago, one of the nation’s largest integrated pastoral companies/lotfeeders made contact to inform us that our negative-$50 forecast was ‘bang on the nose’ of their own calculation done the same morning.  We often cross-check our own numbers with reputable lotfeeders to confirm validity.  

  • Beef Central's regular 100-day grainfed breakeven scenario is based on a representative standard set of production variables, ex Darling Downs. They include a 356kg dressed weight; ADG of 2kg; consumption 15kg and a NFE ratio of 7.5:1 (as fed); $25 freight; interest component. 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. For a more specific performance forecast on a given mob of cattle, consult with your preferred custom feeder.
  • Read Beef Central’s previous March 22 breakeven/trading budget report here

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