Lotfeeding

Variables change, but result stays the same in grainfed budget’s $40 loss

Jon Condon, 09/08/2012

 

The margins on feeding 100-day grainfed cattle remained unchanged in Beef Central’s latest fortnightly trading budget compiled yesterday, indicating a minus-$40 result on a typical Darling Downs-based grainfeeding program.

While there was a significant jump in feeding cost  – understandable given recent global grain price movements driven by the disastrous drought sweeping the US corn belt – this was offset almost entirely by an easing in feeder cattle prices chosen to feed into the trading budget formula.

Feed wheat prices have now risen about $85/tonne since the start of the year.

Even factoring in stocks of grain held by feedlots for current use bought earlier at cheaper prices, the current grain movements are starting to seriously impact on lotfeeding profitability, using our standard 100-day set of variables (see description at bottom of page.)

The most recent negative $40 result is based on Beef Central’s typical shortfed beast entering the feedyard yesterday, and closing-out after 105 days on feed at the end of November. The outcome has slipped considerably since two consecutive slightly positive trade results back in May.

A pointer to yesterday’s likely outcome was seen at last Thursday’s Gympie Carcase Classic, where more than 100 ‘competition standard’ milk-tooth steers and heifers were slaughtered at Nolan’s Gympie abattoir last week after an 80-day MSA program at Les Donald’s Gowanlock feedlot.

While there was enormous variation from best to worst within the mob, the cattle produced an average net loss of $38.99 by the conclusion, based on a feed cost of $304.55/beast, and average gain in value of $265.56.  

For yesterday’s 100-day trading budget, we’ve dropped the feeder steer buy price 5c to 195c/kg, based on evidence of more cattle entering the market, applying a little more supply-side pressure. While feeder cattle supply remains tight through most of NSW, availability in southern and western Queensland is starting to open up.

That is indicated by the numbers yarded through the nation’s largest store sale at Roma over the past few weeks since rain has eased – 7200 on Tuesday, and 8500 a week earlier.

While on the subject of Roma, it was evident this week that Woolworths (and to some extent, Coles) contract-holders were literally jumping over each other to secure suitable feeders, pushing cattle in their desired weight range around 350kg to 220-230c/kg in places. That represents a premium over and above lighter feeder cattle – quite abnormal, in a historical perspective.

Pricing yesterday’s P&L budget feeder steer (flatback crossbred, ex-Darling Downs) at 195c/kg values him at $877, down from $900 a fortnight ago, still some way from our January 9 year-high steer value of $967.

Due to current widely publicised grain price pressures, finished ration price applied in yesterday’s calculation was lifted a further $15/t from a fortnight ago to $285/t. Current spot wheat price ex Darling Downs is about $285/t.

As discussed a fortnight ago, there is still large variation evident in ration prices, depending on inputs and grain buying strategies employed by different feedlots. Current ration price could vary anywhere from $260 to $300/t – unusually wide.

The current ration price represents a total feeding cost over 105 days of $446 (up $23 on July 26’s breakeven), and a total production cost calculated at $1417 ($1377). That’s the highest seen since March/April last year when grainfeeders were paying 210-215c for feeders, and ration price was $250/t.

Cost of gain in the southeast Queensland market, using our chosen variables (210kg gain over 105 days, costing 391c) has lifted from 201c /kg a fortnight ago to 213c/kg yesterday. That figure was only 183c/kg back in April.

Applying these variables suggests a breakeven figure in yesterday’s proposition at around 400-405c/kg dressed weight, up 5c from where it sat a fortnight ago, based on a 360kg hot dressed carcase. The last time we saw breakevens that high was early January, but realistically at that time of year there would have been few trades at those values.

Based on current thin market signals, we have eased the forward contract market price for 100-day grainfeds with major processors back 5c to 385-390c/kg. That’s where there may be some business done, however export processors are under considerable pressure at present with the higher exchange rate and flat demand out of big grainfed markets like Japan and Korea.

The forward price applied in yesterday’s trading budget translates into a trading loss of about $40 a head on a current 100-day feeding proposition. Apply typical meatworks grading downgrades on shortfed cattle, and the budget could easily blow out by a further $10-$20/head, however.

One consideration to ponder, however, is that with the severity of recent frosts, there are likely to be some hollow cattle going onto feed at present, which could be reflected in a little better performance by close-out in late November.

Looking back to our equivalent trading budget from this time last year, the breakeven figure was 365-370c, reflecting feeder prices of about 180c, still rebounding out of their winter lows. Currency value this time last year was around 103c.

 

Spot market position

Cattle bought forward back in April/May, for slaughter today, had breakevens in the mid-to-high 370s. That suggests those forward-bought cattle are basically a line-ball proposition in terms of profit/loss for processors, relative to yesterday’s spot market.

Looking ahead, it looks like there will be a few more feeder cattle around in Queensland in coming weeks, which could further pressure feeder prices, however numbers may continue to be tight in NSW and Victoria due to the competitive pressure from grass finishers with good soil moisture, as conditions warm-up.

Attention will now focus on the quarterly feedlot survey for the period to June 30, to be released in coming days. The industry consensus seems to be that it will register quite a high number for cattle-on-feed, but that the figure is now largely redundant, given what has happened in feedgrain prices, and subsequent cattle placements, through July and early August.         

 

  • 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; typical implant program; 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.

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