The extreme losses cattle feeders suffered in 2015 likely will continue well into 2016 before they begin to get better in the spring, an extension livestock economist said.
“It’s very bearish,” said Kansas State University Extension Livestock Economist Glynn Tonsor of his outlook for cattle feeders in 2016. Closeouts through July are particularly negative.
In an extension release, Tonsor said he expected feedlot margins to be much better by June. Current losses are around $450 a head, but by June, this could be down to only about $67, although the margin for error given variations across operations could easily be $50 either way.
He stressed that utilizing price risk management strategies can minimize losses even more, or even turn a potentially losing situation into a profitable one.
“Anyone who locked in corn for their feeder cattle or fed cattle would have a different experience, maybe better or maybe worse,” he explained. “But unless you protected yourself against a fed cattle (price) decline at or near the time of placement, you’re going to experience substantial losses in these fourth-quarter (and beyond) closeouts.”
FEEDLOT EFFICIENCY IMPROVING
“In the June 2016 closeouts, I am assuming (feeders) paid $150 (per cwt) for the animals replaced,” Tonsor said. He credited a lower cost of gain for bringing feedlot margins back toward breakeven.
Through October, the K-State monthly feedlot survey showed the pounds of feed it took to add a pound of weight to the cattle declined through the year. This is a seasonal trend that likely will turn higher by December as colder weather hampers growth and fattening.
Adding to the improved outlook for cattle feeders are Tonsor’s projections for lower feeder cattle prices in the second half of 2016.
Other market analysts also project lower feeder cattle prices by the second half as cow numbers have risen this year to produce more calves. As pastures decline seasonally in late summer and fall, more calves will be available to cattle feeders, and prices are likely to soften.
The repeal of mandatory Country-Of-Origin labeling also may give feedlots a little respite from high feeder cattle prices in that more feeder cattle from Mexico or Canada could mix in with the US calves.
Strong beef demand could lend extra support.
CASH CATTLE TRADE QUIET
Cash cattle markets traded actively Wednesday at $133 to $136 per cwt on a live basis, mostly $134 to $135, up $9 to $12 from last week. In dressed markets, cattle traded from $210 to $212, up $10 to $12.
The USDA reported sharply higher wholesale beef prices again on Wednesday, but the volume was low. Choice was up $2.50 per cwt from Tuesday to $208.67, and select was up $3.85 at $201.51. The choice/select spread narrowed to $7.16 from $8.51 on Tuesday, and there were 85 loads of fabricated product sold into the spot market.
The USDA reported moderate to fairly good wholesale beef demand yet light offerings. Choice ribs and chucks were steady while select cuts were firm to higher. Choice and select rounds and loins were firm to higher, and trimmings were sharply higher.
The CME Feeder Cattle Index for the seven days ended Tuesday was $157.10 per cwt, up $0.05. This compares with the Jan settlement Wednesday of $165.95, up $3.47.