Foo finders
The Snapshot
- Food on offer (FOO) will be in ample supply this season once the weather in the south begins to warm and pasture growth takes off.
- Based on current cattle & lamb price levels there are profitable gross margin to achieve, but the numbers start to look a bit shaky if young stock are purchased too dearly or the finished market softens too much.
- Young cattle weighing 350kg bought at $5.50kg lwt and sold at $4.50kg lwt, after a 200kg weight gain will deliver a gross margin of $250 per head, after accounting for $300 per head of costs.
- Restocker lambs weighing 32kg bought at $8.25kg lwt and sold at $8.00kg lwt as trade lambs, after a 18kg weight gain will deliver a gross margin of $16 per head, after accounting for $50 per head of costs.
The Detail
The persistent rain and flooding is pretty problematic at present. Our sympathies go out to those impacted, that have lost their homes and possessions. However, one silver lining is that once the weather starts to warm up and the pasture growth kicks in there will be ample food on offer (FOO) for cattle and sheep producers to take advantage of.
In this article we take a look at a simple margin trading tool for cattle and sheep producers based on a matrix that shows dollar per head gross margins for a selection of buying and selling prices. As a caveat I’d like to add that every time we run one of these matrices we get someone saying our costs figure is too low or too high, or that they can’t get stock locally at the prices listed, or that we haven’t included all the costs in raising livestock.
The gross margin matrix for cattle calculates a dollar per head earning based upon the following trade:
- Buy young cattle weighing 350kg live weight
- Raise on pasture, adding 200kg of weight
- Sell cattle at 550kg live weight
- Per head costs are set at $300 (if your specific costs are more/or less than this figure you can add or subtract the difference to the gross margin figure in the matrix to obtain a figure a bit closer to you particular circumstances)
Young cattle prices in the east are currently sitting near $10.40kg cwt or about $5.50kg lwt and the heavy steer price is near $4.50kg lwt. Based on a purchase price of $5.50kg lwt and a sale price of $4.50kg lwt the matrix delivers a gross margin of $250 profit per head. However, it will only take a 50 cent drop in the sale price to result in the trade making a $25 per head gross margin loss.
Chasing young cattle higher as the grass begins to present could pose some difficulties too if the heavy steer price doesn’t hold at current levels or increase further. Buying young cattle above $11.30kg cwt or higher than $6.00kg lwt will be assured to result in a gross margin loss unless you can be sure to sell at $4.50kg lwt or higher.
The gross margin matrix for lambs calculates a dollar per head earning based upon the following trade:
- Buy restocker lambs weighing 32kg live weight
- Raise on pasture, adding 18kg of weight
- Sell trade lambs at 50kg live weight
- Per head costs are set at $50 (if your specific costs are more/or less than this figure you can add or subtract the difference to the gross margin figure in the matrix to obtain a figure a bit closer to you particular circumstances)
Meat & Livestock Australia report that east coast restocker lamb prices are sitting at around $8.25kg cwt and trade lambs are presently fetching nearer to $8.00kg cwt. Based on a purchase price of $8.25kg and an expected sale price of $8.00kg the lamb trade gross margin matrix delivers a profit of $16 per head.
As was the case with cattle, chasing restocker lambs beyond $9.00kg cwt with an anticipated sell price of $8.00kg will see gross margins pretty much evaporate. Similarly, restocker lambs bought at $8.25kg cwt that are sold for under $7.25kg will start to see gross margin losses begin to accrue.