With Covid-19 closing some beef packing plants and others forced to slow chain speeds to accommodate fewer employees on the job, market analysts expect to see fewer feedlot placements and lower feeder cattle prices.
Fed cattle are beginning to back up in the feedlots, and the losses taken by unhedged cattle feeders could make cattle feeders less inclined to take a chance on putting cattle back on feed. At some point, it becomes cheaper to leave feedlot space open than to put feeder cattle in them and feed them out to slaughter weight and fatness.
That point is when the expected revenue received from the sale of the cattle cannot cover the variable costs of production. At this point, producing anything is more costly than producing nothing.
FEEDER CATTLE PRICES ALREADY FADING
Feeder cattle prices already are fading into the sunset. Last week’s average weekly price for 700- to 800-pound medium and large No. 1 feeder steers in the Southern Plains was $123.18 per cwt. Some might see this as a gain if they’re looking only at week-to-week changes since the previous week’s average was this year’s low of $119.72, but this is down sharply from last year and the 2014-2018 average.
The Livestock Marketing Information Center in Denver listed last week’s Southern Plains feeder steer price that was distilled from USDA-Agricultural Marketing Service data. The LIMC also listed the price for those same feeder steers in the same week a year earlier at $151.46 per cwt, a difference of $28.28, or 18.7%.
Additionally, last week’s Southern Plains feeder steer price of $123.18 per cwt compared with the 2014-2018 average of $169.72. This would be a difference of $46.54, or 27.4%.
LOWER EXPECTED FEED COSTS
But aren’t feed costs expected to decline with fewer cattle being placed on feed, one might ask? The qualified answer that many economists might give is a solid “maybe.”
It’s true that pessimism among cattle feeders is liable to keep calves on grass as long as the pastures will tolerate them, but hog and poultry production also is slowing as plants like Smithfield Foods’ Sioux Falls, SD, facility. These animals and birds can’t eat grass like cattle can, and if they back up, it will mean more corn being fed to them.
Also, with ethanol demand down because people are driving less, there will be less production of distillers’ grains, which will mean more corn needs and higher costs for the cattle feeder.
FEEDER SALES DOWN
The losses and uncertainty have resulted in auction receipts for feeder cattle in March declining 43% nationally, said the LMIC’s Livestock Monitor. Video auctions and direct sales also saw significant declines from last year, and total receipts fell 47%.
Feeder cattle imports also dropped in March.
Feedlots typically place more cattle on feed in March, but maybe not this year.
CATTLE, BEEF RECAP
Limited cash cattle trade was reported in the western Corn Belt Tuesday at $150 to $155 per cwt on a dressed basis, down $13 to $15 from last week. Live-basis trade in the Plains last week was at $105 per cwt, down $7 to $8.
The USDA choice cutout Wednesday was up $3.86 per cwt at $230.53, while select was up $6.45 at $222.22. The choice/select spread narrowed to $8.31 from $10.90 with 85 loads of fabricated product sold into the spot market.
There were no deliveries against the Apr futures contract tendered on Wednesday.
The CME Feeder Cattle index for the seven days ended Tuesday was $114.23 per cwt, down $0.30. This compares with Wednesday’s Apr contract settlement of $115.80, down $0.60.