Cattle Feeders Feel Margin Pinch

3-17-15 – Things are getting worse for cattle feeders, with slaughter-ready cattle prices holding within a narrow, sideways range and feeder cattle prices rising.

The USDA reported its average 5-area price for fed cattle last week at $160.78 per cwt, down only $0.20, or 0.20%, from $161.07 the previous week.  And while this was 7.22% above the last year’s $149.95, it still fell behind the cost of producing that slaughter-ready animal.

Projected closeouts for 750-pound feeder steers placed on feed this week range from about a minus $156 to $183 a head, a daunting task for the market to overcome and the likely source of price resistance by cattle feeders.  Calculations of per-head prices paid at one weekend auction showed little difference between weight classes as they crush against the profitability ceiling.

A graph from the Livestock Marketing Information Center shows the widening price disparity of feeder cattle versus fat cattle and the problem facing cattle feeders.  As the disparity between feeder and fed cattle prices widens, so does the issue of profitability for feedlots.




But feedlots aren’t the only ones facing profitability issues.  Beef packers also are teetering on the brink.  Analyst calculations show they may have broken into the black two weeks ago, but sagging beef prices last week may have taken them back into the red.

The USDA’s weekly value for choice beef cutout declined $2.32 per cwt, or 0.93%, to $246.59 from $248.91 the previous week, and a graph of the weekly prices shows a downward trend in the choice boxed beef since the second week of the year.  It is, in fact, in danger of crossing below year-ago levels.




The spread between wholesale prices for choice and select beef are nearing zero, having been inverted, with select rising above the higher-quality choice beef, in the morning reports the last two days but returning to a more normal relationship by the afternoon reports.

The narrowing is a seasonal event and is happening right on schedule.  The five-year average puts the narrowest point in the last week of March, while last year, the turn came in the middle of February.

The turn in the choice/select spread coincides with a seasonal turn in the percentage of choice carcasses in the total slaughter mix.  It also is linked to a rise in grilling activities among consumers as the weather warms.  Some of these activities will wait until the Lenten season ends with the Easter holiday on April 5.

Boxed beef prices, Monday, were higher Monday, although volume was light.  The USDA’s choice cutout was $245.26 per cwt, up $1.14.  The select cutout was $245.06, up $0.99.  The choice/select spread widened to $0.20, and only 75 loads of fabricated cuts were sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Friday was $213.80, up $0.18.