Tighter turnover profit margins fuel chase for smaller cattle

Tighter turnover profit margins fuel chase for smaller cattle

News
BUSY TIMES: Restocker dominance around the rails has created interesting profit margin trends on cattle trades this year. Photo by Lucy Kinbacher.

BUSY TIMES: Restocker dominance around the rails has created interesting profit margin trends on cattle trades this year. Photo by Lucy Kinbacher.

Aa

Restocker dominance has exerted big pressure on profit margins

Aa

PROFIT margins on turning over cattle have continued to tighten all year as the shift to restocker dominance around the rails took an increasingly firm hold.

As producers have looked more and more to source lower weights to maximise their trade profits, the price of smaller steers and heifers has been pushed even higher.

That has brought unexpected volumes out of the woodwork, particularly where it combines with dry conditions taking a grip.

Meat & Livestock Australia analyst Stuart Bull presented fascinating profit ratio analysis on yearling steers to a Productivity and Profitability webinar, hosted by Aggregate Consulting this month.

VIEWPOINT: MLA cattle market analyst Stuart Bull.

VIEWPOINT: MLA cattle market analyst Stuart Bull.

In 2019, feedlots were buying young cattle at a premium on the back of drought, with processors in second place, he explained.

This year, the breakdown of buyers was flipped almost overnight when rain started to fall.

The massive demand out of southern states as the season turned saw some of the largest month-on-month percentage jumps in the past decade.

Yearling steers jumped 28 per cent, on live weight basis, from January to February and yearling heifers 27pc, Mr Bull reported.

"What restocker dominance has done to margins is significant," Mr Bull said.

The MLA analysis presented by Mr Bull was run on the purchase of ten head of Southern Queensland yearling steers weighing 250kg and sold at 557kg. Costs were not factored into the model but Mr Bull made the point they were likely to be more in Queensland due to unfavourable conditions and a reliance on feed.

In January, the steers would have been bought in at 286 cents a kilogram and sold at 387c, delivering a $14,405 profit.

In June, the buy-in price was 427c, sell price 387c, delivering a $10, 880 profit.

But for the past two months, buying in at 478c and selling at 387c gives producers a $9605 profit.

The difference between buying in southern Queensland yearling steers now at 250 kilograms compared to 300kg is an increased profit margin of between three and four per cent, Mr Bull said.

No wonder there is a scramble for smaller cattle.

The same analysis was run on Central West NSW yearling steers, using a 547kg sell weight. It showed at a buy-in rate during January of 265c, sell price of 375c, the profit delivered was $13,887.

In June: buy-in is 445c, sell 375c and profit $9387.

For October and November, buy-in 513c, sell at 375c, profit $7687.

EYCI verses WYCI

Meanwhile, the Eastern Young Cattle Indicator's 2020 reign over its western counterpart has come to an end.

Both the benchmark indicators hit records this month but the WYCI went four cents higher.

The WYCI travelled at a premium to the EYCI for two years before the situation reversed at the start of this year.

Both shot up on the back of January rain but as coronavirus woes came into play, the EYCI was able to push on with its upward rise on the back of continuing rain.

Things quickly dried off in the west and the combination of that and pandemic uncertainty took a big toll on the WYCI but it has gain a lot of momentum of late.

Have you signed up to Stock & Land's daily newsletter? Register below to make sure you are up to date with everything that's important to Victorian agriculture.

The story Tighter turnover profit margins fuel chase for smaller cattle first appeared on Farm Online.

Aa

From the front page

Sponsored by