Slaughter steer prices in the Southern Plains are softening this week, increasing the difficulty of turning a profit for feedlots, a trend that will continue until the price of feeder cattle declines.
More than any other factor, the price of younger cattle to put on feed and fatten for slaughter affects the bottom line for those putting cattle on feed. The cost of feed has already come down from 2012 highs as weather improved in the US and other corn-producing countries. Feed costs are expected to decline a bit more, but ethanol demand may underpin the grain market.
The spread between feeder cattle costs and fed cattle prices is illustrated in a Livestock Marketing Information Center graph. It shows the spread between the price of 700- to 800-pound feeder steers minus the price of fed steers in the Southern Plains. The wider the spread, the harder it is on those trying to make a living feeding cattle.
The feeder/fed cattle spread last year was always above the previous five-year average but really took off in early March as ranchers began holding heifers back for breeding. A seasonal increase in the spread was exacerbated by a lack of feeder cattle. The spread hit its zenith the second week of October as more calves came off summer pasture.
This year, the feeder/fed spread has shown an overall tendency to follow the average trend but at a much higher level. But if predictions for more calves this fall from an expanding cow herd prove accurate, the line for this year’s spread could cross under last year at some point.
That won’t automatically make feedlots profitable, but at least one cost would be capped.
SEASONALS POINT TO SOFTER FED CATTLE PRICES
Slaughter cattle price trends turn lower in early April and bottom in late July or early August as fed cattle supplies tighten seasonally and beef demand picks up going into the Labor Day holiday and then into Fall. And if the price is high enough, it lowers the feeder/fed spread and the potential for profit for those feeding cattle for slaughter.
This year, the trend appears to be holding with this week’s softer fed cattle prices. Cattle traded Wednesday at $159 to mostly $161 per cwt on a live basis, compared with mostly $161 last week and mostly $161 to $162 two weeks ago.
Last year, the price of fed cattle turned higher in early June, but predictions for more fed cattle to be available could produce a more seasonal price trend.
GRASS, FED PRICES TURNING HEADS
But there are rumblings in the industry that fed cattle supplies may not be what USDA Cattle-on-Feed reports suggest. The combination of unprofitable fed cattle prices and the availability of grass this year may cause some to do the unthinkable and return heavy calves to the pasture for more and cheaper gain.
There are anecdotal reports of that happening, but they are hard to track down. The clue will be in slaughter weights going forward. If heavy cattle are being returned to pasture, it should show up in reported carcass weights in coming weeks or months.
CASH CATTLE MARKETS FLAT
Cash cattle markets were moderately active Wednesday, but reported sales volumes hint that more trading could be done. Further action was expected to be at this week’s $159 to mostly $161 per cwt on a live basis.
Beef prices Wednesday were mixed, with the USDA choice cutout at $264.98 per cwt, down $0.61, and the select cutout at $251.06, up $0.03. Volume was active with 129 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Tuesday was $219.85 per cwt, up $0.02, compared with the May futures settlement Tuesday of $219.67.