Many in the futures market talk of rising feeder cattle supplies coming as pastures fade seasonally, and with feedlot losses mounting, it’s little wonder cash feeder cattle prices are running into resistance.
Since peaking at $231.30 pct cwt on June 25, the CME Feeder Cattle Index, a combination of prices from auction barns across the continental US, has declined. Wednesday, it rested at $203.40, a decline of $27.90, or 12.1%, in less than three months.
And most of the trading money is betting on even lower prices to come. The futures market Thursday settled with lower prices in each delivery month out through March of next year.
USDA Cattle Inventory reports show a growing cow herd, leading to expectations of a growing calf herd, which eventually will come to market as a growing inventory of feeder cattle.
But that doesn’t help the feedlots who paid higher prices for feeder cattle a few months ago. These cattle are now coming to market with a calculated $305.03-per-head loss for unhedged cattle feeders, according to the Sterling Beef Profit Tracker. This calculated loss is up from $270.83 a week earlier as fed cattle prices declined.
The difference between feeder steer and fed steer prices remains too wide.
The wider the gap between the price of a 700- to 800-pound steer and slaughter steer prices in the Southern Plains, the worse it is for feedlots, assuming feed and other costs remain stable. They don’t, but the greatest cost for cattle feeders is the feeder cattle, so comparing the two gives a reasonable picture of their profitability.
Graphing this year’s price spread and comparing it with last year and the previous five-year average, it becomes clear that cattle feeders likely will struggle with hefty losses for some time. The only thing for them to do is to cut costs.
COST CUTTING 101
Cattle feeders have been trying to shore up the bottom line for the last couple of years with little success. Even this year as the hope of increasing supplies have kept feeders in the feeder cattle market, prices have been loath to come down.
This year’s weekly low for Southern Plains 700- to 800-pound feeder cattle, at $208.37 per cwt, was set the first week of February when the first inklings of increased supplies began to filter into the market. Early hopes, however, gave way to the reality that it takes about 10 months for calves to grow into 700-pound feeder cattle.
And now that it has been more than seven months since the February low, many again are hoping feeder cattle supplies will begin to grow – perhaps none more so than the beleaguered cattle feeders.
CASH FED CATTLE TRADE LOWER
Fed cattle trading was reported in the Central and Southern Plains Wednesday at $135 to $136 per cwt on a live basis, $4 to $6 below last week. Dressed-basis trades also were reported from $214 to $215.
Despite generally smaller feedlot showlists and what should be more seller price leverage, selling interest was high enough to bring lower cattle prices.
Last week cattle traded from $139 to $142 per cwt on a live basis, about $1 below the previous week. On a dressed basis, cattle traded from $217 to $220 per cwt, down $3.
The USDA reported narrowly mixed boxed beef prices Wednesday with its choice cutout down $0.08 per cwt at $233.41 and select up $0.02 at $225.03 with 126 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Tuesday was $203.40 per cwt, down $0.35. This compares with the Sep settlement Wednesday of $194.12, down $4.20.