Feeding Margins A Good News/Bad News Affair

The good news is last week’s stronger cash cattle prices helped cattle feeders with their negative margins.  The bad news is those margins remain in the red by more than $170 a head.

The Sterling Beef Profit Tracker from Sterling Marketing in Vale, Ore., and published by AgWeb, said unhedged feedlots lost an average of $171.82 a head last week, up from $212.47 a week earlier.  A month ago, feedlots were losing $105.09 a head, but were making $247.11 a year earlier.

The future looks a little brighter for feedlots in that the price of feeder cattle replacements is down from last week and last month at $207.07 per cwt.

However, it remains above last year’s $172.86, and the average calculated breakeven price for cattle placed on feed last week was $157.32 per cwt, $8.27 above Thursday’s Aug futures close of $149.05, or a loss of about $116 a head.

Feed costs also are down, the Profit Tracker said.  Estimated feed costs for each animal placed on feed last week was $220.06, compared with $304.73 a week earlier and $311.47 a month earlier.

More than anything, changes to the relative cost of feeder cattle influenced the current breakeven calculations for cattle feeders.  The relative cost of feeder steers in the estimated margins was 81.05% with the cost of feed comprising 12.55%.  A year ago, the mix was 72.96% and 19.91%, respectively.




Everything worked against the packers last week.  Cattle costs were higher while the average wholesale the products declined.

Calculations show that packers lost an average of $47.82 a head on cattle purchased last week, compared with losses of $33.45 a week earlier and $96.01 a month ago.  A year earlier, however, packers were making an estimated $65.27.

The cost of choice slaughter steers in the Texas/Oklahoma area last week was $163.45 per cwt, up from $161.26 a week earlier and $149.04 a month ago.  A year earlier, these costs were up 7.72% from $151.74 per cwt.

Beef cutout prices, though, did not keep pace.  Last week’s beef cutout price after adjusting for percentage of choice and select was $245.86 per cwt, up $4.91, or 2.04%.




In response to continued losses, cattle feeders are skewing their feedlot placements toward heavier feeders.  This cuts overall costs by using cheaper forage to add pounds for as long as is feasible and limiting the costs from corn-based feeds.

But to do that, the feeder cattle industry needs forage.  By now, any winter wheat fields that are destined for harvest have had grazing calves removed and sent to grass or to the feedlots, depending on weight.

And there is growing concern among cattle and grain producers alike over dry conditions in key areas.  The latest National Oceanic and Atmospheric Administration’s weekly drought monitor shows a troubling pattern of dryness in the US hard red winter wheat belt, extending into the upper Midwest.

Texas and Oklahoma show an expanding area of “extreme” and “exceptional” drought, the two worst categories.  Kansas also is blanketed by “moderate” and “severe” drought.




Cash cattle markets Thursday remained quiet as packer buyers bid $160 per cwt on a live basis for fed cattle, while feeders asked mostly $166.  In Nebraska’s dressed market, bids were posted at $258, versus asking prices of mostly $266.

Boxed beef prices were mixed Thursday with the USDA’s choice cutout up $0.16 per cwt at $250.67 and select down $0.18 to $246.96.  Volume was moderate, with 96 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Wednesday was $217.63 per cwt, up $0.73.  Mar futures expired at $217.45, down $0.25.