Current breakeven and fed cattle price projections suggest net first-quarter returns of a negative $75 a head, similar to current estimates of 2020 returns, said Michael Langemeier, University of Illinois at Urbana-Champaign, agricultural economist, in a study paper published by Illinois farmdocdaily.
Similar studies suggest net feeding returns in the second quarter of 2021 will be closer to breakeven.
COST OF GAIN
Feeding cost of gain in Kansas averaged $84.37 per cwt in 2019 ranging from $81.61 in October to $91.67 in March, he said. Feeding cost of gain averaged $83.27 per cwt in the first quarter and $84.28 in the second quarter of 2020.
Third-quarter feeding cost of gain averaged $77.75 per cwt, Langemaier said. Average cost of gain for the fourth quarter of 2020 was projected to be similar to the third quarter.
Because of recent large increases in corn prices, projected cost of gain for first-quarter 2021 were expected to range from $83 to $87 per cwt with the largest occurring in March.
For the second quarter of 2021, projected cost of gain was expected to range from $82 to $86 per cwt with the largest occurring in April, Langemeier said. The lower cost of gain for May and June was not from lower corn price projections but from typically lower feed conversion during these two months than in January through April.
Cost of gain is sensitive to changes in feed conversions, corn prices and alfalfa prices, he said. Regression analysis showed that each $0.10 increase in feed conversion increases feeding cost of gain by $1.24 per cwt, each $0.10 per bushel increase in corn prices increases cost of gain by $0.88 per cwt and each $5 per short ton increase in alfalfa prices increases cost of gain by $0.50 per cwt.
FEEDER TO FED PRICE RATIO
Since January 2010, the feeder-to-fed cattle ratio averaged 1.22, Langemeier said. The ratio was one standard deviation below or above this average for 17 and 19 months, respectively, since January 2010.
The average net return for the months in which the ratio was below one standard deviation of the average was $143 a head, he said. In contrast, the average loss for the months in which the ratio was above one standard deviation was $257 a head.
The average ratio for the 19 months with a feeder-to-fed price ratio that was above one standard deviation of the long-run average was 1.49, Langemeier said. The feeder-to-fed ratio averaged 1.22, 1.39 and 1.31 in the first, second and third quarters of 2020, respectively.
In October and November, the ratios were 1.18 and 1.20, he said. The ratio was projected to average 1.25 in the first quarter and 1.20 in the second.
CATTLE, BEEF RECAP
Fed cattle trading was reported in the Plains last week at $110 to $112, steady with the previous week. Dressed-basis trading was reported at $175 to $177 per cwt, down $1 to up $1.
The USDA choice cutout Monday was up $0.89 per cwt at $207.69, while select was down $0.95 at $195.74. The choice/select spread widened to $11.95 from $10.11 with 98 loads of fabricated product and 25 loads of trimmings and grinds sold into the spot market.
The USDA reported Monday that basis bids for corn from livestock feeding operations in the Southern Plains were unchanged at $1.18 to $1.25 a bushel over the Mar CBOT futures contract, which settled at $4.92 1/4 a bushel, down $0.04.
The CME Feeder Cattle Index for the seven days ended Friday was $136.16 per cwt, up $0.53. This compares with Monday’s Jan contract settlement of $136.00 per cwt, up $0.17.