Cattle Feeding Margins Fall; Average Losing Money

Cattle feedlots now are losing about $3.04 on every head of slaughter-ready cattle they sell after last week’s cash price for live animals fell $5.00 per cwt.  Margins dropped nearly $55 a head on the decline.

The numbers come from the Sterling Profit Tracker, a weekly publication of Sterling Marketing in Vale, Ore.

The latest Profit Tracker calculations show that last week’s feedlot losses came after profits of $51.49 a head the week before as cash prices plummeted under the influence of live cattle futures.

Cattle feeders a month ago were losing about $25.18 a head, but were making $135.66-per-head a year ago.  Such is the roller-coaster ride of cattle feeding.

However, beef packer margins climbed out of the red ink last week, averaging an estimated $15.10 a head as cattle prices fell and beef prices rose about $9 per cwt to counter a $1.85-per-head decline in the hide and offal value.

For the cattle that were sold to packers last week, the cost of the steer comprised 79.32% of the total cost of getting the animal to slaughter weight and condition, down slightly from the 79.95% of a week earlier but up 0.41 percentage point from 78.91% a month earlier and up 10.1 percentage point from 69.24% a year earlier.

Relative feed costs are down significantly from a year ago at 14.1% of the total cost, compared with 23.7% last year.

But while feedlots and packers slug it out over margin, cow/calf producer margins continue to climb.  The annual estimated profit per cow this year is about $700, compared with $548 last year, $543.05 in 2013 and $213.65 in 2012.

 

CATTLE BASIS VERY STRONG

 

Cash prices for fed cattle in the Plains this week were mostly $159 up to $160 per cwt on a live basis.  This is about $7 above the Feb futures contract and well above the five-year average basis of a minus $1.41.

Actually, the basis is very strong for any time of the year.  Calculations from the Livestock Marketing Information Center show that average Kansas steer basis levels generally peak after the Apr futures contract expires and Jun becomes the spot month.  The peak average basis at this time is a plus $3.56.

But the basis last year expanded to far larger levels than the average.  As the Apr contract went off the board and Jun became the focus, the basis jumped to $13.88 from $1.77 when Apr was in command.  From there, the basis declined to a low of plus $2.72 one week before Jun expired.

 

CASH CATTLE PRICES CONTINUE DECLINE

 

Cash cattle prices in the Southern Plains fell about $6 per cwt this week to mostly $159 to $160 on a live basis.  Action was considered light to moderate, leaving cattle unsold coming into today.

Further bids from packer buyers dropped to $158 per cwt on Wednesday as futures prices dropped Tuesday and remained well below cash levels on Wednesday.

However, cattle sellers were holding tough on asking prices of $162 to $163 as futures bounced on Wednesday.  Looking at the red ink on their bottom lines also helps steel seller resolve to fight lower prices whenever they have a chance.

But beef prices weakened Wednesday afternoon after being higher in the USDA’s midday report.  The USDA Wednesday afternoon reported its choice cutout value at $257.19 per cwt, down $1.05 from Tuesday.  The select cutout was down $0.42 at $248.41.

The CME Feeder Cattle Index for the seven days ended Tuesday to $221.08 from $221.87 the previous day.  In contrast, the Jan futures contract, with expires in a week, settled Wednesday at $216.00 per cwt.