Current breakeven and fed cattle price projections suggest losses to cattle feeders will continue for the rest of 2018, said Michael Langemeier, Department of Agriculturaol and Consumer Economics at the University of Illinois at Urbana-Champaign in the Illinois Extension Service’s Farmdocdaily.
However, prospects for early 2019 are considerably brighter, Langemeier said.
Given the recent stability in feeding cost of gain, net return projections for the next few months were driven by the feeder-to-fed price ratio, he said. For losses to diminish in the last half of 2018, feeders would need fed cattle prices in the $115 to $120 per cwt range.
COST OF GAIN TO HOLD
Feedlot cost of gain averaged $77.20 per cwt in 2016 and $74.34 in 2017, Langemeier said. Since the start of this year, feeding cost of gain has ranged from $74.85 in May to $79.75 per cwt in February.
Given current corn and alfalfa price projections, feeding cost of gain was expected to range from $70 to $75 per cwt for the rest of the year, he said.
Regression analysis showed that each 0.10 increase in feed conversion increases feeding cost of gain by $1.32 per cwt; each $0.10 per bushel increase in corn prices increases feeding cost of gain by $1.06 per cwt, and each $5 per short ton increase in alfalfa prices increases feeding cost of gain by $0.52 per cwt, Langemeier said.
FEEDER-TO-FED CATTLE RATIO HIGH
The ratio of feeder to fed cattle prices for the last 10 years averaged 1.19, Langemeier said. The feeder-to-fed price ratio was one standard deviation below or above this average for 14 and 19 months, respectively during this period.
The average net return for the 14 months in which the ratio was below one standard deviation was $146 a head, he said. The average loss for the 19 months in which the standard deviation was $243 a head.
Of the 19 months with a ratio above one standard deviation of the average feeder-to-fed price ratio, 18, including June 2018, have occurred since January 2015, Langemeier said. Given current price projections, the feeder-to-fed price ratio was expected to remain above 1.25 through September and above the 10-year average through the rest of this year, resulting in finishing losses for the second half of 2018.
BREAKEVENS PROJECTIONS JUST OUT OF REACH?
Net feedlot returns averaged near $110 a head last year, Langemeier said. During the first quarter of 2018, net returns averaged from $8 a head in March to $51 in January.
Average losses in the second quarter of 2018 ranged from $40 in May to $145 in June, he said.
Breakeven prices for the rest of 208 were expected to range from $115 to $120 per cwt, with the higher breakeven prices occurring in the third quarter, Langemeier said, but could turn positive in early 2019.
CATTLE, BEEF RECAP
851 head of fed cattle sold Wednesday on the Livestock Exchange Video Auction at an average price of $110.07 per cwt, down from the last sale at $112 two weeks previous.
Cash cattle traded last week at $113 to mostly $114 per cwt on a live basis, up $1 to $2 from the previous week. Dressed-basis sales were reported at $178 per cwt, steady to up $2.
The USDA choice cutout Monday was up $0.93 per cwt at $205.68, while select was up $1.24 at $198.33. The choice/select spread narrowed to $7.35 from $7.66 with 71 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Friday, was $149.74 per cwt, up $0.82. This compares with Monday’s Aug settlement of $151.85, down $1.00.