Estimated returns for commercial cow/calf producers are expected to drop again in 2016, removing some incentive to continue expanding the cow herd.
Demand for feeder cattle is declining as feedlots continue to bleed red ink, and the herd is growing, making more calves available for purchase. However, estimated cow/calf returns still are above all previous years back through 1987.
The Livestock Marketing Information Center said that after a phenomenal 2014, cow/calf producer returns declined sharply in 2015. Returns were especially pressured by a drop in calf prices in the last half of the year. Feedlots were losing hundreds on each fed animal sold to the packing plants and were not able to pay 2014 prices.
USDA data show returns over cash cost for 2015 at $299.85 per cow, down $229.20, or 43.3%, from $529.05 in 2014.
Returns for 2016 were expected to drop even more to around 200.27 per cow, a drop of $99.58, or 33.2% from 2015. This is $328.78, or 62.1%, below 2014.
Cow/calf returns may not approach 2014 values again anytime soon. This spike of $402.18, or 317.0%, from 2013’s $126.87 was the result of a perfect storm of drought-busting rains to turn grasslands green again, a 63-year low cattle herd and a recovering US economy.
The economy is still growing, beef consumption remains good, and the pastures are still green. However, the herd is larger, and feedlots simply can’t pay the going rate for feeder calves and still turn a profit.
For that reason, simple economics is pressuring the feeder cattle market while the economics of growing the cow herd make it unlikely that cow/calf producers will re-enter a liquidation phase any time soon.
Once a cow/calf producer decides to keep a heifer for breeding instead of selling her to the feedlots for feeding and slaughter, hundreds of dollars are already invested in her. And, by keeping her, the producer already is giving up whatever income could be derived by selling her to the feedlots.
From there, it will take roughly another year for her to produce her first calf, depending on the age at which she was retained and seasonal factors. During this time, she is subject to disease and injury that could thwart the whole process by killing her.
From the time her first calf is born, it will take another six months to a year for the calf to be sold to the feedlots. By this time, the cow/calf producer has so much invested in this cow that it will take a few more calves for her to return a profit, once all the ongoing expenses of feed and maintenance are included.
CASH CATTLE TRADE QUIET
Cash cattle markets Thursday were quiet after trading actively Wednesday at $133 to $136 per cwt on a live basis. Most trades were $134 to $135, up $9 to $12 from the previous week. In dressed markets, cattle traded from $210 to $212, up $10 to $12.
The USDA reported sharply higher wholesale beef prices again on Thurs, but the volume remained low. Choice was up $3.81 per cwt from Wednesday to $212.59, and select was up $3.71 at $205.22. The choice/select spread widened to $7.37 from $7.16 on Wednesday, and there were 67 loads of fabricated product sold into the spot market.
For the week, the choice cutout was up $17.69, or 9.08%, from $194.90. The select cutout advanced $17.72, or 9.45%, from $187.50.
The CME Feeder Cattle Index for the seven days ended Wednesday was $159.64 per cwt, up $2054. This compares with the Jan settlement Thursday of $166.90, up $0.95.