Still money in turnover cattle, despite rocketing market

Still money in turnover cattle, despite rocketing market

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Margins lower but stock is a key ingredient in the beef game.

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AUSTRALIAN beef is now the world's most valuable at the same time the cattle herd is on track to be at its lowest level in more than two decades.

That explains why anyone with a hint of grass seems to be scrambling for stock at the moment, sending the young cattle market sky high and online livestock sales to new records.

SEE: AuctionsPlus smash cattle records with over 17,000 head

With high prices at buying time comes potentially lower margins in trading animals.

Many are watching those paying big money for turnover weaners and steers, and store cows, and wondering how the sums stack up.

Analysts and agents say while prices at the other end aren't expected to be as high as they currently are, the strong fundamentals mean there is still money to be made from putting weight on cattle.

Just published global export figures for 2019 show Australia's total beef shipments added up to $10.8 billion.

Meat & Livestock Australia analysis found that while Australia sits behind Brazil in terms of volume exported, it performed better on a value basis. Australia's beef export value expanded by 17pc on the previous year.

Ultimately, the only way to captilise on strong global demand for Australian beef is to put grass to full use, agents said, which is why, despite the extraordinary prices, anyone who has feed needs to be in the market.

Analysis by Holmes Sackett, Wagga Wagga, shows it is still possible to make a reasonable margin with a buy-in of $4.50 a kilogram and a 20 per cent decline in sell price.

While there is a loss on every kilogram purchased, the producer still picks up the upside of increased value of weight gain due to the higher price of every kilogram produced.

Director John Francis said clearly the aim was not to pay any more than you have to "but the market is the market and you need to re-align expectations of returns during times like this."

Mr Francis suggested running the scenarios so producers know what weights suit their system - that is what weight gains are achievable given the days to sale - and what prices are likely to deliver an adequate return.

Holmes Sackett work indicates the margin per head is likely to decline relative to pre-drought because of an expected trading loss on the purchase.

"When the sell price is expected to be lower than the buy price, buying lighter animals lowers the value of the trading loss," Mr Francis said.

Some traders have locked in a sell price pre-winter to feedlots of around $4 a kilogram, he said.

"This provides a known weight target and a known value for the sell price which allows a trader to reduce the trading loss and maintain a reasonable margin on the whole venture, assuming they can buy for around $4.50 per kilogram," Mr Francis explained.

He said the same principle would apply to store cows - it will be the weight gain that adds value.

"Clearly the trading loss can't exceed the value of the weight gain margin or the trade is a loss making exercise," he said.

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The story Still money in turnover cattle, despite rocketing market first appeared on Farm Online.

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