Cattle Feeders Coping With Rising Feed Costs

Despite high and rising feed costs, the average unhedged cattle feeder may be doing OK in the long haul, said a Livestock Marketing Information Center letter to Extension agents called In The Cattle Markets.

February cattle feeding returns continued their positive streak, calculating to a little less than $100 per steer, the LMIC said.  In fact, feeders have seen positive returns for the better part of the last 12 months with gains surging to $200 a head in the fourth quarter last year.

 

RETURNS NOW FADING

 

However, returns faded in the last two months because of increasing total costs, the LMIC said.  Feeder steers were 13% higher at the time of purchase compared with those that came out in November when closeouts were in the black $200 a head.

Feed costs have continued rising and were expected to do so for the coming months with ongoing concerns related to the Ukraine/Russia conflict, the LMIC said.  For February closeouts, feed costs increased 7% from those in November.

In the wake of Ukraine/Russia, grain markets look to challenge last year’s highs, the LMIC said.  This could erode profitability, but closeouts through the next couple of months had lower feeder cattle costs, which should offset some of the rising feed cost for the next four months.

 

HIGHER BREAKEVENS SEEN

 

The expected breakeven for 750-pound steers already placed (closeouts from now through August) ranges $129-$133 per cwt, but likely will rise with grain prices, the LMIC said.  Fed cattle prices were expected to remain above these levels and likely will be profitable for most of the year.

The LMIC bases its cattle feeding returns on the cost of raising a 750-pound steer to slaughter weight, the LMIC said.  So far, 700- to 800-pound steer prices have been limited in their upward mobility.

The opposite has been true for lighter weight calves, whose prices across different regions of the country have ranged from $187-$230 per cwt for 400- to 600-pounders, the LMIC said.  At these prices, and current grain prices, putting a 500-pound animal on feed that was bought north of $185 per cwt would need a breakeven fed price of $160 or higher.

 

JANUARY PLACEMENTS UP

 

January data indicated higher-than-a-year-ago placements in under 600-pound categories and 600- to 699-pounders.  The LMIC’s assessment is that some of the price increase is linked to the availability of feeder cattle supplies after so many months of strong placements.

Additionally, feedlots are flush with cash from the last couple of months of closeouts, the LMIC said, and even though it does not appear that these expensive light-weight cattle will be profitable, cattle feeders may be using them for other strategies like keeping pens full to maintain cash flow.

 

CATTLE, BEEF RECAP

 

The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $138.08 to $139.85 per cwt, compared with last week’s range of $140.92 to $145.00.  FOB dressed steers and heifers went for $217.61 to $220.18 per cwt, versus $221.90 to $225.95.

The USDA choice cutout Thursday was down $01.03 per cwt at $257.05, while select was up $0.41 at $250.68.  The choice/select spread narrowed to $6.37 from $7.81 with 94 loads of fabricated product and 53 loads of trimmings and grinds sold into the spot market.

The USDA reported that basis bids for corn from feeders in the Southern Plains were unchanged at $1.30 to $1.40 a bushel over the May futures and for southwest Kansas were steady at $0.00 over May, which settled at $7.54 1/2, up $0.24 1/2.

The CME Feeder Cattle Index for the seven days ended Wednesday was $154.23 per cwt up $1.09.  This compares with Thursday’s Mar contract settlement of $156.55 per cwt, down $0.70.