Cattle feeding margins may be taking a hit this week as live basis fed cattle cash prices fall as much as $6.00 per cwt, although lower corn prices could ease some of the strain.
After last week’s cash cattle price jump of $2 to $4 to mostly $170.00 per cwt, cattle feeding margins jumped $43.21 a head to $51.49 from the previous week’s $8.28, according to the Sterling Beef Profit Tracker. The tracker cited the higher cattle prices amid relatively stable feeding costs.
The calculations from Sterling Marketing Inc., showed that cattle feeders a month earlier were losing $32.76 a head but a year earlier were making $121.94 on each animal sent to slaughter.
PACKERS STILL LOSING OUT
Packer margins this week likely are being helped as long liquidation in live cattle futures pulls cash cattle prices lower while rising wholesale beef prices take returns on investment higher. The USDA’s beef cutout prices have risen every day for more than a week, although the value of hides and offal continues to sink.
If cash cattle were to average $165 per cwt this week, along with this week’s jump in beef prices would put estimated gross packer margins at a four-month high, according to AgResource.
The Sterling Profit Tracker placed average packer margins last week at a minus $57.25 a head, compared with a minus $50.23 a week ago and a minus $61.62 a month ago. Last year, packers were losing $43.96 a head.
The USDA’s choice boxed beef cutout Wednesday was $263.81 per cwt, up $2.18 from Tuesday and up $11.06 from a week earlier. The select cutout was up $2.00 from Tuesday at $253.68 and up $11.56 from a week earlier.
Spot sales of beef were moderate Wednesday with 102 loads of fabricated product sold.
COW/CALF PRODUCER MARGINS SEEN HIGHER
Cow/calf producers this year are projected to make $743 a cow after all costs are factored in, the Profit Tracker showed. This is up from an estimated $556 a cow last year, $243.05 in 2013 and $213.65 in 2012.
With lower cow and heifer slaughter rates, there is some evidence that herd rebuilding is taking place, as producers attempt to take advantage of the profit margins.
However, it appears that herd rebuilding after years of decline is being approached cautiously since the expense of turning a heifer into a cow can total into the hundreds of dollars, or thousands if the lost opportunity cost of not selling her to a feedlot is factored in.
NEARBY FEEDER CATTLE FUTURES COULD REBOUND
The nearby Jan feeder cattle futures contract Wednesday closed $1.40 per cwt lower at $220.15. This was very near the open of $220.17 but well off the day’s high of $222.75.
The chart pattern comes after three days of lower prices and sticks out to candlestick chartists as an “inverted hammer.” This formation means the bears may be running out of gas and that a reversal of fortunes is possible soon.
The Dec. 31 high of $219.50 is the bottom of a gap on daily charts that may form some sort of support for the Jan contract, which needs to find some strength to converge with the CME Feeder Cattle Index, which was reported at $232.07 per cwt as of Tuesday.
The Index has declined a little from its nearby peak of $235.22 but with an $11.92 spread between the Index and Wednesday’s settlement, the market has some work to do before it expires on Jan. 29.
The Index has declined the last three days, but with a continual shortage of feeder cattle in the country, cash markets may be supported near current levels.