Beef Packers Could See Black Ink This Year

Despite near record-high prices for beef, packers and feedlots continue to operate with negative margins, although potentially rising inventories of heavier cattle could lift packers into black ink this year.

In its latest Livestock, Dairy and Poultry Outlook report, the USDA said disproportionate placements of heavy feeder cattle into feedlots, relatively low corn prices and historically low feedlot inventories were allowing feedlots to feed cattle to heavier weights.

Packers are paying higher prices for those cattle but still are running in the red.  But imports of cheaper lean grinding beef (up 48.4% from a year earlier in February) offer grinders some relief, and prospects for more and larger fed cattle in coming months give packers some hope for profitability in the future, if byproduct values find some footing.




Feedlots may be as lucky if feed costs remain manageable.  So far, market projections indicate a belief that course grain production, including corn, will be up in other exporting countries and keep US feed prices in check.

Beef production in 2015 was forecast by the USDA at 24.210 billion pounds, down 42 million, or 0.17%, from 24.252 billion last year, which should bolster prices.

However, the whole annual production cut took place in the first quarter.  From here on, quarterly beef production was expected to surpass last year.

Feeder cattle prices were expected to turn lower in the third quarter, but not enough to help feed yard bottom lines much.  Projected by the USDA to range from $219 to $231, second-quarter feeder steer prices at Oklahoma City are the only ones in which the projected range has a number lower than the 2014 quarter’s average.

Even worse for cattle feeders, USDA’s projected prices for fed cattle decline in the third quarter and hold about steady in the fourth, leaving them with a higher annual price that came in the first two quarters when they operated in the red.

The only hope for cattle feeders in the near future, then, is for feed costs to come down.  Currently, the corn market is skittish about growing season weather issues, and a premium is being built into the market as wet conditions in the Delta/Southeast and southern Midwest prevent planting on a timely basis.




US corn planting last week reached 9% complete, the National Agricultural Statistics Service said in its weekly report, four percentage points behind the 13% five-year average.  It is, however, three percentage points above last year’s 6% pace, and four percentage points behind normal isn’t too bad if it weren’t for persistent chatter that farmers may elect to plant soybeans in fields that were scheduled to grow corn.

Such switches are possible and are done every year, but it’s a tough call for those who have put down nitrogen fertilizer ahead of an expected corn crop because soybeans fix their own nitrogen from the air and seldom need this input expense.




Cash cattle markets Monday were quiet, although there were rumors of a small trade at $254 per cwt on a dressed basis, $2 below the range of last week’s dressed-basis sales of $256 to $260.  No other packer bids were reported with asking prices around $163 on a live basis and $263 dressed.

The USDA’s beef cutout value Monday rose with the choice cutout at $259.14 per cwt, up $1.35 from Friday.  Select was $252.20, up $1.23.

The CME Feeder Cattle Index for the seven days ended Friday was down $1.81 per cwt to $217.66, compared with Monday’s settlement of the Apr futures contract at $211.82.