Fed cattle prices have strengthened in the last few months as lower corn prices have decreased the feeding cost of gain, said Purdue University Agricultural Economist Michael Langemeier, in a university release.
Partially in response to those two phenomena, feeder cattle prices and breakeven prices have increased substantially, Langemeier said. He expected fourth-quarter breakevens to be $10 per cwt higher than those for the third quarter.
Moreover, breakevens in early 2024 were expected to be another $10 per cwt higher, he said. These large increases in breakeven prices increase the uncertainty related to net return prospects for the next few months.
GOOD NEWS/BAD NEWS
Average fed cattle prices rose from $161 per cwt in the first quarter of this year to $180 in the third quarter, or 12%, while feeding cost of gain declined from its peak earlier this year, Langemeier said.
That’s the good news. Now for the not so good news, he said.
Feeder steer prices have increased substantially over the year, he said. So, net returns to cattle finishers depend on fed cattle prices, feeder cattle prices and feeding cost of gain.
HISTORICAL BREAKEVENS
Breakeven prices have been increasing rapidly since the fourth quarter of 2022, Langemeier said. After averaging about $155 per cwt in the fourth quarter of last year, breakevens averaged about $168.40 per cwt in the first quarter of 2023 and $167.40 in the second quarter.
The average breakeven price for the third quarter of this year was approximately $174.20 per cwt, he said.
Net return can be determined using the difference between the fed cattle price and the breakeven price, Langemeier said. Since April, fed cattle prices have been higher than the breakeven price with the widest gaps, or largest net returns, occurring in June and July.
PROJECTED BREAKEVENS
Langemeier said, breakeven prices were expected to average around $186 per cwt in the fourth quarter of this year, with the highest breakeven price, $196 per cwt, occurring in December.
What about the gap between fed cattle and breakeven prices, he asked. The gap was projected to be positive for cattle feeders in October and November and then become negative as the market move into December.
For the first one-half of 2024, breakeven prices were expected to range from $193 to $197 per cwt, Langemeier said.
His charted projections indicated the greatest challenge to feeders could come in the first half of 2024 with a sharp gain in expected breakevens.
Will those breakeven prices lead to cattle finishing losses? They very well could, he said.
However, given the relatively tight beef supplies, the potential monthly gaps between fed cattle and breakeven prices, or net returns, are very difficult to project.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $179.05 per cwt to $186.00, compared with last week’s range of $180.60 to $187.95 per cwt. FOB dressed steers, and heifers went for $286.15 per cwt to $292.15, compared with $290.71 to $293.89.
The USDA choice cutout Wednesday was up $0.66 per cwt at $296.33 while select was off $0.03 at $267.85. The choice/select spread widened to $28.48 from $27.79 with 103 loads of fabricated product and 38 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.35 to $1.40 a bushel over the Dec corn contract, which settled at $4.70 3/4 a bushel, down $0.07 1/2.
The CME Feeder Cattle Index for the seven days ended Tuesday was $228.35 per cwt, down $0.29. This compares with Wednesday’s Nov contract settlement of $229.42, down $0.62.