MANAGING the considerable supply challenge in current livestock market conditions is the big drawcard for Elders’ Killara feedlot in using the AuctionsPlus forward delivery feeder sales as part of its procurement activity.
Killara’s trading manager Andrew Talbot has bought forward-delivery feeders at both AuctionsPlus special feeder sales held so far this year, as well as the two preliminary sales held in spring last year.
The company’s 20,000 head Killara feedlot near Quirindi turns off around 55,000 head of grain-finished cattle each year into export and domestic markets.
The first of the feeders bought at this year’s first AuctionsPlus forward delivery sale in July are being inducted at the feedlot presently, with more due for delivery through to the end of September.
“The steers we bought under the program last year – some with delivery dates out to four months forward – all delivered in-spec, and there were no real issues,” Mr Talbot said.
“It gave us confidence that the AuctionsPlus platform can facilitate this function effectively,” he said.
“To us, what was important was that a conservative approach be taken by the assessors, in terms of weight expectations, especially when cattle aren’t due for delivery for three or four months. We would expect that the assessors use ‘achievable’ weightgains in their assessments of such cattle,” he said.
“What’s made that more comfortable for us this year is the good season, which gives us more confidence that the cattle are in fact going to achieve the anticipated weight, by delivery time. That was much harder in a dry year like 2015.”
The only real risk in a year like this was market fluctuation, Mr Talbot said.
“But for a company like Elders, the biggest advantage in buying these cattle forward delivery is not about hedging price – it’s in guaranteeing a certain percentage of our feeder cattle supply can be locked-in in advance, in what is obviously a very tight feeder market,” he said.
To this point Elders had not sought to engage with its customers for grainfed cattle, in locking in a finished cattle or meat price based on the forward purchase price of the feeders.
“We certainly keep in contact with our grainfed beef customers and tell them where we think prices are going, down the track. But at this stage, for us, it is more about managing the supply line,” Mr Talbot said.
“Certainly over the past 12 months, it’s been obvious that procuring all our feeder cattle requirements on the spot market has been very difficult, for obvious reasons. This process takes some of the pressure off, a little, by knowing we have some of those feeder requirements already secured, forward.”
But what happens if Killara ‘gets the price wrong’, Beef Central asked.
“At the end of the day, we’re not suggesting we know what the feeder market is going to do in three or four months’ time. Nobody does. But even if we do get it wrong, we still have a certain percentage of our supply coming in on the spot market, to soften the blow,” he said.
But does the AuctionsPlus forward contract feeder option also provide potential for a new price discovery tool for industry, in terms of giving an indicator where stakeholders (buyers) think the market will be, at time of forward delivery?
“Certainly the first dedicated feeder sale this year held in July did,” Mr Talbot said.
“It showed that there was a clear premium on offer for people who could deliver cattle to spec to feedlots in August and September.”
“But the market also then started to factor-in that there is likely to be a price adjustment (downwards) for feeders in October, November, December.
“What’s happening now is that the feeder market is continuing to firm, and hold on, quite late into the season. I think all buyers – both feedlots and processors – would anticipate that there will be a market adjustment at some point. But nobody will get the timing 100pc right.”
“But when it happens, we think it will be sudden, and potentially, quite steep.”
“Currently, though, among vendors putting feeder cattle on AuctionsPlus for forward delivery October-December, there’s an expectation that prices will remain at least about where they are now. Buyers, though, now generally see some price falls during that period.”
But given the current super-heated cattle market, it is understandably hard for any vendor to accept that his cattle are likely to be worth less in three months’ time than they are today, and that could well be reflected in lower completed sales in coming AuctionsPlus forward delivery sales.
The implication is that that ‘disconnect’ may see a handbrake on completions on AuctionsPlus forward sale listings for a while, until the market finds its feet.
“At the end of the day, we’ll all have to wait two or three months to see what happens,” Mr Talbot said.
“But we think come delivery time later this year, there will be a softer market in place for feeder cattle, than what exists today. That’s based on likely supply of cattle, and historical reasons. Nearly every year, history shows the EYCI-represented market segments retract between 2pc and 20pc between the months of October and December. We think that will play out again, but to what extent, who knows,” Mr Talbot said.
“But we’ve bought feeder cattle out of each of the dedicated forward delivery sales held so far by AuctionsPlus, and will continue to do so – so long as there are realistic price levels applied,” Mr Talbot said.
- See this morning’s separate article on the merits seen in AuctionsPlus’s forward delivery options on feeder cattle.
HAVE YOUR SAY