THERE’S an old saying that financially, Australian lotfeeders can tolerate high feedgrain prices or high feeder cattle prices, but not both at the same time.
That adage is being tested at present, with both inputs sitting at record, or at least uncomfortably high, levels.
A large Queensland feedlot operator told Beef Central Central yesterday that, having bought his yard’s last feed barley consignment at $405 per tonne delivered, the market yesterday was $485-$490/t.
“I’ve never seen anything like it in my time in the industry; extreme high feedgrain prices, at the same time as two or three good growing seasons in a row, and very expensive feeder cattle prices,” the lotfeeder said.
“It’s at the crossroads now as to whether lotfeeders start closing down pens because of the losses involved.
“I spoke to a smaller opportunity lotfeeder yesterday who has the feeder cattle on hand, and has the grain on hand to feed them.
“But he is talking about selling the cattle as feeders and selling the grain, into the market. And he would not be the only one having that conversation.”
While there are pockets of grainfed cattle business in the market that are still better than others, from a broader industry perspective, conditions at the moment for lotfeeders are extremely difficult, a large supply chain manager told Beef Central yesterday.
Feedgrain prices have now risen $150-$200/t since the Ukraine War broke out, and the trend has only redoubled since India on the weekend announced it was limiting wheat exports, which could cut the global supply by 8.5 million tonnes.
Local feedgrain prices had risen another $10-$15/t since Tuesday, one contact said. See Friday’s weekly Feedgrain Focus report.
What’s made this feedgrain price cycle unique is that it has come at a time of abundant supply.
Normally, skyrocketing feedgrain prices in Australia have been associated with drought and short supply, often with grain being shifted north and east across the continent from other locations by sea, rail and road.
SFW wheat delivered Downs yesterday was quoted at $480/t, at a time when there is arguably more grain in the country than has ever been seen. Back in late February, Brisbane SFW was quoted at $345/t.
Subject to each feedlot’s own position on grain, movements like this are putting some yards in an extremely difficult position, one contact said.
Prior to the Ukraine conflict, there was no great motivation for yards to secure unusually large forward grain stocks.
“Even for those who had a larger position around harvest, quickly that gets absorbed when the market moves as far and as suddenly as it has recently,” he said.
While some yards apparently moved on securing grain soon after the Ukraine conflict started due to perceived price risk, others did not respond to the same extent.
“Some went particularly hard and got significant cover, and while they might be relatively better off than others, the fact the market has moved so far so soon has lost a lot of that advantage,” the trade source said.
“The liquidity in the market at present, combined with the logistical issues, is making it very difficult for all lotfeeders at present,” he said.
Ration prices surge
The extreme shift in feedgrain value has inevitably pushed feedlot mixed ration prices sharply higher, although they still lag somewhat, Beef Central was told.
Commercial Darling Downs yards this week have ration price offers at between $400/t and $430/t, depending on the yard, ingredients and grain processing system.
That has been insulated somewhat by more competitive cottonseed values, and reduced roughage values this year for both silage and hay.
“It’s fair to say that current ration prices do not yet reflect the full extent of grain price movements,” one supply chain stakeholder said.
“There’s potentially more to come – the full extent has not yet been factored in, because they are using grain bought earlier.”
Looking back, pre-Ukraine invasion, some southern Queensland yards were quoting ration price at around $360/t.
Those ration prices could well rise to plus-$450/t in the not too distant future, once current grain prices are included, he said.
“But for a yard building a ration based on today’s spot feedgrain prices, it takes the finished ration price of more than $500/tonne; that’s unprecedented,” the contact said.
Downs feedlot ration prices quoted by Beef Central only once before got to $490/t, which happened several times between July 2018 and March 2019, during the midst of the drought grain shortage.
The difference then was, that cost of gain (COG) during that era was around 350c/kg, with a steer purchase price averaging 304c/kg and a finished 100-day grainfed bullock price of 680c/kg dressed weight.
If rations get to $500/t as predicted, COG will go to around 375-385c/kg.
Compounding current financial challenges for lotfeeders is that flatback feeder steers 450kg liveweight are today making around 535-540c/kg, with Angus equivalent around 640c.
At its peak earlier this year, flatback heavy feeders were briefly making around 580c/kg, but while there has been a 50c/kg decline since then, prices are still extraordinarily high by historical standards.
It’s that potent combination of record high grain and ration price, and persistently high feeder steer price which is impacting heavily on lotfeeders’ numbers at present.
Finished cattle price
The only other significant variable that can ease the financial burden is the finished grainfed bullock price.
Current forward pricing for export grainfed ox (generic cattle, not Angus-brand programs or Wagyu) among grainfed processors in Queensland is already at all-time record highs, around 840-880c/kg, for July-August delivery. That’s up around 50c/kg since the start of the year.
But despite that lift in inducement, it does no go close to covering the massive and growing cost burden driven by record feedgrain and high feeder prices, Beef Central was told.
Net losses remain in “serious negative territory” on the trade of buying a feeder steer, getting him fed in a typical custom feedyard, and selling him as a finished bullock after 105 days on feed. Current grain positions held by each yard would have some bearing on that, Beef Central was told.
“It’s been particularly tough trading for a lot of lotfeeders for the past 12 months, and recent developments are only making it worse,” one contact said.
Does it reach a point where some lotfeeders start pulling back on numbers?
“I think there has already been a bit of that,” the contact said.
“Some have been pulling back, while others have been rolling with it – depending on how their business is structured, market access, and the markets they service.”
The Australian Lot Feeders Association’s quarterly survey of feedlot numbers for the March quarter is due out Monday, but it will carry some lag, and may struggle to reflect the more serious change in dynamics that has happened since April.
So is it likely that feeder prices may have to drop in coming months, given recent rain, to ease some of the cost pain being borne by lotfeeders – especially if numbers on feed start to recede?
Several contacts felt prices would come under some pressure through winter, but offsetting that, currency movements working in Australian grainfed beef exporters favour in recent months (back 10pc since March, worth around 40c/kg dressed weight, or $132/head) may provide some buffer.