Mecardo Analysis - Lamb feeding is a risky business this year
- By: "Farm Tender" News
- Ag Tech News
- Sep 11, 2018
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By Angus Brown | Source: MLA, Mecardo.
Last week we looked at the cost of feeding ewes through until next year. But there might also be plenty of lambs out there requiring feeding to finish this year. With grain prices seemingly happy at current levels, we do the numbers on the cost of finishing lambs this spring and summer, and whether it’s worth it.
There are three main factors which govern the lamb feeding equation. The prices of store and finished lambs are very volatile, changing day to day, let alone week to week. The price of feed is also volatile, but the east coast values of feed grain have been relatively steady for the last month or so.
The last time we looked at feeding lambs in July, we had a full grain ration at $450/t, store lambs at 580¢/kg and finished lambs 550-700¢/kg cwt. Lambs that were on feed in July would have made a healthy $60/head profit after feed, but before labour. The punt in July has paid off, largely due to price rises.
The current scenario has the full ration at around $500/t, store lamb prices at 850¢/kg cwt and we’ll put the finished lamb scenarios in at 600, 700 and 800¢/kg cwt. Such is the uncertainty around lamb prices going forward.
Figure 1 shows that those paying up to $120/head for store lambs are being optimistic if they are going to grain feed them. To turn a profit on these lambs, the trade lamb price will have to be around 800¢/kg cwt or $167/head for a 20.2 kg cwt lamb.
Based on the weight parameters in Figure 1 and at current grain prices there needs to be a $42 spread between store and trade lamb prices to make feeding work. Over the last fortnight, this is almost exactly what the spread in NSW has come back to (Figure 2).
As the finished lamb price rises, the value of the gained kilograms rises. As such the ¢/kg price the store lambs can be bought for increases. Around $7 is the tipping point, where stores can be bought for the same price as finished lambs. At $8 for finished lambs, stores can be bought at 840¢ for a break-even result.
Key points
* High grain prices make feeding lambs an expensive exercise this year.
* The spread between finished and store lamb prices will be critical in providing a profit.
* Forward contracts are likely to be offered to encourage carrying of lambs despite good store values.
What does this mean?
The falls in lamb markets late last week and early this week might be a correction rather than the start of a downtrend, but it seems the supply of finished lambs is finally starting to improve. Those who have bought store lambs in recent weeks should still be ok with finished prices at 800¢, but things will get tighter for fed lambs as we move into the 700-750¢ range.
The high cost of grain this year ratchets up the risk involved with buying lambs to finish, or feeding home bred lambs. If forward contracts can be secured for lambs it will give the job some more certainty. We expect they might start to appear with processors looking to encourage regular suppliers to finish their lambs.
If the spring is as dry as forecast, taking $110-125 for store lambs will offer a low risk, low labour outcome that's attractive to many, so some certainty and incentive might be required to encourage lambs to be carried on.
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