Current and expected fed cattle prices have declined by about $10 per cwt over the past five weeks, said Josh Maples, assistant professor of agricultural economics at Mississippi State University, in the Livestock Marketing Information Center’s “In the Cattle Markets.”
The decline has eroded the projected profitability for feedlots through the rest of the year, Maples said.
According to Kansas-State University’s Kansas Feedlot Net Return series, the projected net return for steers in Kansas feed yards was $136 a head for July closeouts. In fact, each month this year has seen positive returns with some months in the late Spring showing returns of more than $300 a head.
Sterling Marketing’s Beef Profit Tracker, published by Drovers, puts feedlot margins for the week ended Aug. 18 at $140.17 a head, compared with $235.34 a week earlier and $252.76 a month earlier. In the same week a year ago, feedlot margins were estimated at $34.47 a head.
However, projections for the next nine months are negative, Maples said. August closeouts show projected losses of $31 per head while the projected loss for November is $169 per head.
FEEDLOT RETURNS VOLATILE
Feedlot returns are volatile as they rely on feeder and fed market prices, feed cost of gain and a relatively long production lag, Maples said. The K-State report provides historical and projected return information and was last released on Aug. 14.
The K-State series reflects a cash market situation without price risk management strategies being implemented, even though many feedlots do engage in some type of price risk management, Maples said. However, few can offset price risks fully, and most feedlots are at least partially exposed to price risks when calves are placed on feed.
POSITIVE RETURNS ENCOURAGED CALF DEMAND
The positive feedlot returns seen during the first half of 2017 helped encourage feedlots to bid aggressively to replace cattle sold to packers.
But now, the shift toward negative returns means feedlot operators will have to make tough decisions about replenishing inventory with cattle that are projected to lose money, Maples said. The historically large losses of 2015-16 are certainly still fresh on operators’ and lenders’ minds.
The Sterling Profit Tracker put the average, unhedged breakeven for calves placed on feed last week at $107.66 per cwt. Cash cattle were trading this week at $107.
But depending on how heavy the calves were that went on feed last week, there may be opportunity to hedge at a small profit. Calves weighing 700 to 800 pounds, for instance, will finish in February, and the Feb futures contract settled Wednesday at $111.32.
In any case, it is likely that feedlots will be forced to bid less aggressively on feeder cattle than during the past few months as they monitor the profitability of their operations closely, Maples said.
CATTLE, BEEF RECAP
There were no sales last Wednesday on the livestock exchange video auction for the second straight week.
Cash cattle trading in the Central Plains was reported Wednesday at $107 per cwt on a live basis, down $3 from the bulk of last week’s action. No trading was reported yet in dressed markets, but traded last week at $175 to $177.
The USDA’s choice cutout Wednesday was down $0.70 per cwt at $192.33, while select was off $1.42 at $189.47. The choice/select spread widened to $2.86 from $2.14 with 138 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Tuesday was $143.38 per cwt, down $0.05. This compares with Wednesday’s Aug settlement at $141.62, down $0.45.