Marginal profit on 100-day grainfeds

Jon Condon, 27/10/2011

Profitability on export grainfed cattle remained on the right side of the ledger – just – in Beef Central’s latest breakeven calculation compiled yesterday.

'What if?' results showed a modest +$1 trading result on a 100-day grainfed beast placed on feed yesterday and closing-out in February, week-two, next year.

On face value, that does not sound too attractive, and in fact represents a slight decline from a +$6.75 trading result produced in calculations a fortnight ago. But in the context of some of the big losses seen over the past six months, that single ‘golden coin reward’ is an important psychological fillip.

It still rates as the second best result seen since Beef Central was launched back in mid-May, and a $90 turnaround from theoretical trading results produced mid-year on the proposition of buying, feeding and selling for the 100-day grainfed market.

A gradual recovery towards lotfeeding profitability has been evident in the past four breakeven calculations. Beef Central’s exercise calculated on September 20 suggested a figure of negative $4 on 100-day cattle (editor’s note: individual results may vary – see Beef Central’s standard chosen variables at bottom of page). The two projections before that in early September and mid-August were negative $37 and negative $46 respectively.

The recent turnaround in profitability is being driven mostly by improved forward prices for grainfed export cattle, and a little easing in feeding cost.

An analysis based on yesterday’s spot market for inputs suggested a breakeven figure of 395c/kg dressed weight, for 100-day grainfed steers ex-Darling Downs, going on feed yesterday and closing-out around February 8.

That’s up 7c from 388c in our last breakeven done on October 11 – a 1pc increase, primarily due to increase in feeder cattle prices. The overall tightening of supply is reflected in James Nason’s market summary filed today “Availability driving young cattle prices.”

There’s been a 5c/kg rise in feeder steer buy prices since last time, now pencilled-in at 200c/kg.
Finished ration price remains unchanged at $255, following a $10/t market-to-market drop factored into the last calculation on the strength of international grain price movements over the past month (see Luke Walker’s recent feedgrain update).

Total production cost yesterday was calculated at $1392, a $23 or 1pc rise on a fortnight ago, driven by the 5c/kg rise in feeder steer price. That’s based on flatback feeder steer purchase plus typical feeding program, and a 1pc mortality rate in the yard.

Also having as bearing on today’s outcome is the over-the-hooks forward sale price for February week two, which has been raised from 385-390c/kg last time to mid-390s yesterday. That forward figure has now lifted a full 55c from the low 340s back in mid-July.

The forward price might come under some pressure, however, if the A$ continues its current drive beyond parity with the US$, after settling a fortnight ago in the mid-90s. The A$ this morning was worth around US104.3c, up from 99.61c, during the last breakeven calculation. 

While yesterday’s publicly-quoted spot market grid price for 100-day grainfed ox among southeast Queensland processors was around 365c, there appears to be significant upward variance available in individually negotiated rates up to the low-390s, subject to processor requirements.

That means that for forward-bought cattle purchased back in July in the 350s, about 40c/kg below where the ‘true market’ is today, processors are currently in the money to the tune of about $100 a head on 100-day ox,  according to Beef Central’s calculations.

Those processor ‘wins’ need to be put in context, however. It must be remembered that when processors were buying those cattle forward in the 350s in July, they were killing cattle that cost them over 400c/kg, representing huge losses.

Feedlot numbers resilient

One of the noteworthy outcomes from this year’s profitability roller-coaster for grainfed cattle has been the surprising stability in numbers on feed in Australian feedlots, throughout.

Recent ALFA/MLA surveys have shown little of the volatility that would likely have been seen five or ten years ago, given similar market price circumstances. That suggests that these days, there are relatively few cattle placed speculatively on feed, without a pre-determined home at the end of the cycle.

Closer supply relationships with preferred customers, and brand program development would appear to be part of the explanation for this.

Having said that, some of Beef Central’s contacts suggest there might now be a few more spot cattle entering feedlots, as sums start to improve, given the market outlook and a trading mentality. Some of this may be driven by the need to secure cattle for volume. Similarly, feedlots are better off making $1 a head with a high level of occupancy, than 40-60pc, as has been seen during the year in some cases.

With BOM forecasts suggesting another above average wet season lies ahead, another summer/autumn scenario not unlike 2011 looks like unfolding for producers weighing up the option to put cattle on feed or remain in the paddock with an abundance of grass.

With current grass rates for ox at around 365c – the equivalent of around 200c/kg liveweight – the higher base-price means the equation that will come into many producers’ minds is why do I sell today at the equivalent of 200c, and my replacement cost is 230-240c for a replacement 300kg calf, when I can put another 150kg on that beast and get 200c/kg for him in 6-7 months’ time?

  • Beef Central's regular "What if?" 100-day grainfed breakeven scenario is based on a representative standard set of production variables, ex Darling Downs. They include a 356kg dressed weight; average daily gain of 2kg; consumption 15kg and a feed conversion ratio of 7.5:1 (as fed); $25 freight; interest component. It is important to note, however, that variations can 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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