To feed or sell breeders? Decisions now will further impact forward supply

James Nason, 29/07/2014

Picture courtesy of Kent Ward KB Consulting

Will cattle prices be high enough in three or six months time to justify the costs of buying feed now to preserve remaining breeders?

It’s a question only time can answer and one that will largely come down to when and where rain falls across drought-affected Eastern Australia this coming Spring or Summer.

But with widespread frosts accelerating the decline of remaining winter feed and backing many already-destocked producers further into a corner, attentions are now turning to whether it makes sense to feed or further sell into what’s left of breeding herds.

And with female slaughter rates already running at record levels, decisions producers make based on market signals and projections in coming weeks are likely to have even further important ramifications for cattle supply next year and beyond.

Many producers are now crunching the numbers on whether it makes economic sense to buy feed to keep a reasonable percentage of core breeders intact until a hoped-for seasonal break arrives in spring/summer and boosts cattle prices, or to sell breeders now into a depressed market, avoiding the costs of buying feed but knowing it is likely to cost much more to buy equivalent replacements back when rain does arrive.

Overhanging these deliberations is the spectre of a forecast rainfall-reducing El Nino pattern in summer, but in recent weeks forecasters have tempered their predictions somewhat to suggest that if an El-Nino does kick in, it should be relatively weak one.

In simple terms the question focusing attentions right now comes down to a basic “break even” calculation: Producers know roughly what price they can get for their breeders if they sell today, and roughly what it will cost per head in supplementary feed to hold them until the chances of storm rain increase in two to three months’ time in spring or more general summer rain in four to six months.

If and when widespread rain falls, there is general consensus that it will trigger a significant kick in prices, through stemming the drought-forced flow of cattle to the market.

Tools such as FutureBeef’s “sell or feed calculator” spreadsheet – click here to view on the FutureBeef website – can help producers do some basic sums and to test scenarios on break-even sale prices required to justify feeding or whether selling and buying cattle back makes more economic sense.

(It’s important to note the calculator does not factor in all related considerations such as how decisions to feed or destock impact upon soil and pasture productivity)

While every producer’s scenario will vary depending on their individual circumstances, some general number crunching can still provide some useful guides as to the results producers are likely to be seeing.

For example, what is the breakeven sale price producers would need to receive for cows in January 2015 to justify the cost of feeding them from now until that time?

Working on a starting unit of a 400kg cow worth 100c/kg today, and inputting a feed cost of $1.50/head per day for 180 days (based on feed intake of 3kg/hd per day at a feed cost of $500/t), the breakeven sale-price to cover feed and associated feeding costs until mid-January 2015 would be 180c/kg lw. (See example spreadsheet here – clicking on this link will download an example Excel spreadsheet file)

The spreadsheet can also be used to estimate – based on assumptions – whether it would be more advantageous to sell cattle now and buy replacements back in six months time.

The spreadsheet attached suggests that selling the 400kg cows today and buying back 400kg breeders in six months time would provide a cost advantage of $5/head compared with the costs in the above feeding scenario. This is based on a projected buy-back price of 160c/kg or $640/hd price after it rains and does consider pasture sparing benefits.

(Buy-back prices may well be higher for heavier cows and also if projections of a significant market post-rain kick prove accurate).

Southern Queensland cattle producer Lee McNicholl, working on calculations involving PTIC cows, says in his view feeding is likely to produce a better outcome, provided producers have sufficient dry matter and their herd’s genetics are not easily replaced.

This is based on feeding a 380kg, four months PTIC cow, which in six months time would have a one-month old calf at foot.

If summer rain has been received by then, he says, a decent PTIC cow and calf unit will be worth at least $750.

“The way I look at it as follows,” he said.

“The 380kg cow, 4 months PTIC, right now is worth say $330 net.

“In six months with calf it will be worth $750 minimum.

“The value-add is $420, which is the break even for feeding plus other costs (according to the calculations in the spreadsheet example provided).

“If it rains before the six months end you are well in front. A genuine consideration however is also the wear and tear on people and gear doing the feeding and maintaining the pasture coverage.

“On my figures, you break even feeding for six months, which is better than buying back at a loss as per your spreadsheet calculations.”

A final word on selling versus drought feeding

FutureBeef senior beef extension officer Roger Sneath makes the point that while everybody’s circumstances are different, in most cases where pasture reserves have been exhausted, long periods of large-scale drought feeding are unlikely to be economic and can become very damaging to many aspects of the operation – people, stock, soils, pastures, equipment and finances.

Increasing feed costs and stock losses are common problems. Of course, the closer we get to a break in the season the more attractive it becomes to hold, or for those with enough pasture then there will be buying opportunities.

There will still be the risk as to when the break comes. While the lucky ones may get a good early break, in el Niño years in particular, people would still have to be prepared for a later break as happened for many earlier this year in February and March.





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