Current feedlot breakevens and fed cattle price projections suggest 2018’s losses will continue into 2019, said Purdue University Agricultural Economist Michael Langemeier in the Illinois Extension Service’s farmdocdaily.
Given the recent stability in feeding cost of gain, net return projections for the next few months primarily are driven by the feeder-to-fed price ratio, Langemeier said. For net returns to be positive in 2019, fed cattle prices will need to approach $125 per cwt in the first quarter, $120 in the second and $118 in the third and fourth quarters.
After averaging $111 a head in 2017, average cattle finishing losses in 2018 were $45 a head, he said. The largest losses occurred in June and July, at $126 and $108, respectively.
Current fed cattle price projections suggest breakeven prices during the first half will result in average losses of about $25 a head. Third-quarter average losses were expected to be more than $25 while fourth-quarter returns were expected to be close to breakeven.
2018 COST OF GAIN $78.10
Feeding cost of gain averaged $78.10 per cwt in 2018 ranging from a low of $74.87 in May to a high of $80.31 in December, he said. Given current corn and alfalfa price projections, feeding cost of gain was expected to range from $79 to $82 during the first six months of 2019.
Feeding cost of gain is sensitive to changes in feed conversions, corn and alfalfa prices, Langemeier said. Each $0.10 increase in feed conversion increases cost of gain by $1.43 per cwt; each $0.10 per bushel increase in corn prices increases cost of gain by $0.87 per cwt, and each $5 per short ton increase in alfalfa prices increases it by $0.55 per cwt.
During the last 10 years, the ratio of feeder to fed cattle prices averaged 1.20, he said. The ratio was one standard deviation below this for 13 months during the period and above for 18 months.
The average net return for the months in which the ratio was below one standard deviation of the average was $159 a head, Langemeier said. In contrast, the average loss for the months in which the ratio was above one standard deviation was $238 a head.
The average ratio for the 18 months with a feeder-to-fed price ratio that was above one standard deviation of the 10-year average was 1.35.
Given current price projections, the feeder-to-fed price ratio was not expected to reach these levels, he said. However, the projected ratio was expected to remain above the 10-year average for most of 2019 with the exception of June.
If those ratios materialize, he expected at least small losses. A fed cattle price increase would create a downward spike in the price ratio and would improve the outlook for net returns.
CATTLE, BEEF RECAP
One hundred sixty-one head of fed cattle sold on the Fed Cattle Video Exchange Wednesday at $124 to $124.50 per cwt.
Cash cattle have traded lightly this week at mostly $124 per cwt on a live basis, steady to up $0.50 from last week, and at mostly $197 per cwt on a dressed basis, down $1 to $2.
The USDA choice cutout Thursday was down $0.86 per cwt at $216.71, while select was down $0.84 at $211.53. The choice/select spread narrowed to $5.18 from $5.20 with 82 loads of fabricated product sold into the spot market.
There were 20 heifer and 15 steer contracts tendered for delivery.
The CME Feeder Cattle index for the seven days ended Wednesday, was $141.81 per cwt, up $0.28. This compares with Thursday’s Mar contract settlement of $143.25, up $0.07.