It really is no surprise, but the Sterling Profit Tracker from Sterling Marketing in Vail, Ore., showed that packer margins jumped after fire closed Tyson Foods’ Holcomb, KS, beef plant.
The Sterling Beef Profit Tracker, published by Drovers, showed estimated beef packer margins in the week ended Aug. 16 to be a plus $358.38 a head, up $167.38, or 87.6%, from $191.00 in the prior week.
The latest packer margin also was up $198.24, or 123.8%, from a positive $160.14 a month earlier and up $146.45, or 69.1%, from a positive $211.93 a year earlier.
To arrive at the new calculated beef packer margin, John Nalivka, owner of Sterling Marketing, used the USDA’s five-area direct cash price for slaughter-ready steers of $107.42 per cwt. He then calculated in the average USDA beef cutout value of $225.94 per cwt and the USDA’s average value of all internal organs and hides, called the drop credit, of $133.49 a head.
A week earlier, fed steers were worth $113.00 per cwt, the beef cutout was $211.85 per cwt and the drop credit was valued at $130.32 per head.
A market analyst said the data show the result of lower cash cattle prices in the immediate aftermath of the plant’s sudden closing. It was the market’s way of rationing the sudden decline in slaughter capacity.
Further, slaughter data since then show that packers have stepped up to buy and process cattle because of the larger profit potential, the analyst said. Overall cash cattle prices likely will come back to a level close to where they were before the fire, although feedlots in the immediate vicinity of Holcomb could see depressed prices until the plant comes back on line.
FEEDLOT MARGINS DROP
Just as it was no surprise that packer margins rose as fed cattle prices dropped after the Holcomb fire, margins for cattle feeders dropped. The Sterling Profit Tracker put estimated feeder margins at a minus $28.13 a head, down from a positive $23.88 in the week before.
Feeder margins also were down from a positive $39.55 a head a month earlier but up from a negative $59.99 a year earlier.
To arrive at the latest feeder margin, Nalivka used the USDA’s five-area direct fed cattle price for the week of $107.42 per cwt, a feeder steer cost of $137.73 and a feed cost of $276.45 a head for a total cost of $1,489.05 a head.
That made for a break-even cost of $109.49 per cwt, short of the price received by $28.13 a head.
For calves placed on feed last week, the break-even price was calculated at $109.07 a head. This used a cost for $750- to 800-pound feeder steers at the Oklahoma City auction of $1355.87 per cwt and a feed cost of $286.69 a head for a total cost of $1,483.38 a head.
CATTLE, BEEF RECAP
Cash cattle traded last week at $106 to $107 per cwt on a live basis, down $7 to $9 from the previous week, and at $170 to $172 dressed, down $11.
The USDA choice cutout Wednesday was up $0.04 per cwt at $241.74, while select was up $1.43 at $215.70. The choice/select spread narrowed to $26.04 from $27.43 with 76 loads of fabricated product sold into the spot market.
No cattle were tendered for delivery against the Aug contract Wednesday.
The CME Feeder Cattle index for the seven days ended Tuesday was $137.18 per cwt, down $0.08 from the previous day. This compares with Wednesday’s Aug contract settlement of $137.37, up $1.07.