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Heavy traffic in feeder cattle will rob 2018 of grassfed ox

Jon Condon, 24/07/2017

BEEF processors are becoming increasingly conscious of the number of young cattle being sold this year as feeders into grainfed programs, that would otherwise appear in their kill rosters in 2018 as grassfed heavy ox.

A number of processors in Queensland and northern NSW have told Beef Central they are already adjusting their forecasts for access to export-type grassfed steers next year, as a result of the void being created by the large flow of young cattle into feedlots this year.

At a time when the national beef herd is still near 20-year lows due to drought, record numbers of cattle on feed of just short of one million head were reported in the latest March quarter feedlot industry survey. Anecdotally, there’s been little suggestion of change in feedlot activity since then.

A regular Beef Central contact who buys feeder and slaughter cattle for a large Queensland processor told us last week about purchasing a nice line of six decks of flatback feeder steers out of the Injune district north of Roma, to enter 100-day grain programs in company yards in coming weeks. The price was 325c/kg, delivered.

But at the same time, there was a tinge of remorse evident in his voice, because those same cattle are normally bought from the same vendor 12 months later, as heavy grassfed ox, +350kg carcase weight.

“That’s next year’s bullocks gone from that place – there’s a shadow there now for next year’s kill, and some processors are already gearing themselves up to be less reliant next year on grass ox, because of it,” he said.

It is symptomatic of the quandary the eastern Australian beef industry is currently in, in ‘robbing Peter to pay Paul.’

“We (processors) are incentivising everybody to sell them as feeders or backgrounders instead of fats. Processors are going to have some pain next year, don’t worry. Up through Central Queensland, a lot of those number 5s (calves branded with a numeral 5, to denote calving in the 2015 calendar year) are gone to the feedlot. That’s next year’s grass bullocks, lost,” he said.

“The feeder scene is a totally different scene to what it was ten years ago.”

Around this time last year, JBS Australia, the largest processor of grain and grassfed cattle in Australia, skipped a week at both of its dedicated eastern Australian grainfed processing plants, to better align demand with supply. That came at significant cost, but the company has shown no sign of repeating the process in 2017. That will inevitably bite further into forward grassfed numbers for 2018.

Price driving decisions

In simple terms, what’s driving decisions among ‘traditional’ northern grassfed bullock producers to sell next year’s bullocks early, at lighter weights, is price.

We built the graph below using MLA/NLRS’s new tool ‘My MLA’ support tool, comparing the NLRS Queensland yearling feeder indicator (blue line) with Qld saleyards heavy steer price (green line – note the graph set-up did not allow us to make comparisons with OTH rates). What it clearly shows is a gradual widening in price differential between feeders and grassfed heavy steers, on a c/kg basis, over the past two years.

That’s inevitably incentivised more producers to sell early, at lighter weights. While the feeder market has come off the boil from earlier record highs, flatback heavy feeder steers ex Darling Downs last week were still worth 315-320c/kg liveweight, or $1280 for a 400kg steer.

Click on image for a larger view

 

Meat & Livestock Australia’s senior analyst Ben Thomas told Beef Central the concerns aired by processors about access to heavy grassfed slaughter steers next year made logical sense.

“We are anticipating the number of cattle on feed across Australia to remain relatively high – and of course those cattle have to come from the system, somewhere,” Mr Thomas said.

“Higher levels of grainfeeding can happen in one of two ways: either feeding more heifers, or more steers. Steers, logically, will account for the greatest amount in a year when heifers are being retained for herd recovery, and that inevitably means fewer of those heavy grassfed bullocks next year,” he said.

“But if that happens, as it appears to be, it could also bring a small benefit. By taking those grower steers out of the grass paddock a year early to go into the feedlot, it could free-up more country to allow people doing it to increase the number of cows they can run.”

Mr Thomas said the proportion of grassfed beef to grainfed produced in Australia might change a little, as a result of the current trend.

“The long-term ratio of grainfed to grassfed beef is somewhere between 36 and 40 percent of overall production being grainfed. But that could rise somewhat, perhaps to well above 40pc being grainfed production next year.”

Mr Thomas agreed that the shift in grainfed as a percentage of overall beef production could also be reflected in the ratios of chilled and frozen beef being produced.

He posed the question about whether there may have been a ‘cautionary’ tone in recent decisions to sell steers a year early as feeders, rather than hold them until next year as finished grassfed slaughter steers.

“Some could be thinking, ‘We’ve had a damn good run: we might have seen the best of it and there might be a bit of a correction ahead – so better to take the money for feeders today rather than wait until next year when bullocks might be worth less,” he said.

“They may be thinking that the extra kilos might not be enough to offset the current, still very strong price for feeders.”

Rising feedgrain impact?

Yet to be seen is what effect, if any, the recent rapid rise in feedgrain prices has on numbers of cattle on feed across Australia. As discussed in Beef Central’s regular 100-day trading budget published last week, sustained low grain prices during 2016 and early 2017 provided a favourable trading environment for feedlot operators, but rises of close to $100/tonne for feedgrain since April have pressured feeding margins, even in the face of falling feeder steer values. Feed wheat on the Darling Downs last week was being quoted at $325/tonne.

Grain producers across much of Queensland and northern NSW are still holding out for rain to boost current crop yield prospects, but time is running out in many areas.

 

 

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Comments

  1. Brian hills, 25/07/2017

    You never know what is around the corner take the money and keep your grass

  2. Judy Kennedy, 24/07/2017

    At AGIC 2017 next Thursday 3rd Aug in Melbourne there’s a session on Outlook for the domestic feed sector & strategies for further growth – Tess Herbert, ALFA on role of lot feeding in Aus grain mkt; Michael Whitehead ANZ on Aus feedlot sector; Luke Mason, Grains Concordia on SE Asia feed wheat demand.
    Full program at http://www.ausgrainsconf.com/australia

    Thanks for the heads-up, Judy, my old friend! Grain Central will be in attendance at the conference, and will provide reports for both Beef and Grain Central websites from these and other presentations. Editor

  3. Doug Miles, 24/07/2017

    Economically, short selling steers usually destined for grassfed slaughter is a viable option. With the prospects of a less than favorable outlook for the spring and beyond coupled with good values being offered from feeders, short selling steers presents us with turn off security and the ability to protect remaining pastures to grow the next generation to turn-off without losing much in value relative to time.

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