Average cattle finishing losses in 2022 were estimated to be about $70 per head, and current breakeven and fed cattle price projections suggest the cattle finishing sector will experience net losses in the first half of 2023, wrote Purdue University Agricultural Economist Michael Langemeier, in a report called Farmdoc Daily.
FEEDING COST OF GAIN
Feeding cost of gain in October, the latest month for which data were available, averaged about $135.92 per cwt per month, exceeding the relatively high cost of gains in early 2013, Langemeier said.
A natural question to ask is whether the October value represents a peak, he said. The short answer is probably not.
One of the ways to answer the question is to note that the projected cost of gain for cattle placed in October using feedlot survey results of Kansas feedlots was $146.20, Langemeier said. Another way to answer the question is to project feeding cost of gain for the next several months and see how these values compare to feeding cost of gain for October.
That’s not an easy task, but feeding cost of gain for November and December of 2022 (when available) was expected to range from $137 to $140 per cwt, he said. Using the mid-point of these projections, the estimated feeding cost of gain for 2022 is $127.50.
Feeding cost of gain for the first and second quarters of 2023 were expected to range from $140 to $143 per cwt and from $135 to $140 per cwt, respectively, Langemeier said.
FEEDER CATTLE TO FED CATTLE PRICE RATIO
Since January 2012, the ratio of feeder to fed cattle prices averaged 1.23, he said. The feeder to fed cattle price ratio was one standard deviation below (above) the average for 17 (18) months since January 2012.
The average net return for the months in which the ratio was below one standard deviation of the average was $108 per head, Langemeier said. In contrast, the average loss for the months in which the ratio was above one standard deviation was $265 a head.
The average ratio for the 18 the months with a feeder to fed cattle price ratio above one standard deviation of the long-run average was 1.49, he said.
Because of the detrimental effect of relatively high corn prices on feeder cattle prices, the feeder to fed cattle rate was relatively low in 2022, Langemeier said. In fact, the ratio averaged only 1.08 in the fourth quarter.
Typically, when the feeder to fed cattle price is low, the cattle finishing sector experiences strong net returns. The high feeding cost of gain experienced in the second half of 2022 prevented this from happening, he said. Projected net return for the fourth quarter is a negative $40 a head.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $157.47 to $158.85 per cwt, compared with last week’s range of $150.00 to $159.50. FOB dressed steers, and heifers went for $246.75 to $250.61 per cwt, versus $245.58 to $251.79.
The USDA choice cutout Wednesday was down $3.80 per cwt at $280.73 while select was off $0.23 at $258.10. The choice/select spread narrowed to $22.63 from $26.20 with 85 loads of fabricated product and 32 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains was unchanged at $1.95 to $2.10 a bushel over the Mar corn contract. Bids in Kansas were steady at $0.85 over the Mar, which settled at $6.56 a bushel, up $0.01.
The CME Feeder Cattle Index for the seven days ended Tuesday was $182.32 per cwt up $1.34. This compares with Wednesday’s Jan contract settlement of $183.12 per cwt, down $1.17.