Despite declining corn costs, feedlot breakeven prices are expected to remain lofty, presenting a profitability challenge to cattle feeders for months or years to come. Currently declining corn prices likely won’t be enough to offset rising feeder cattle costs.
Feeding costs per hundred pounds of gain are well below last year but remain slightly above the five-year average, according to Kansas State University calculations. For June, the average cost was $91.36 per cwt, $28.59, or 23.8%, below a year earlier, but $5.17, or 6.00%, above the previous five-year average.
Based on last week’s USDA five-market average price for fed cattle, the Livestock Marketing Information Center calculates current breakeven prices to be about $147 per cwt, leaving about $13 per cwt profit for the average cattle feeder.
Looking ahead, the LMIC estimated that breakeven prices for cattle placed in August would be about $148, rising to around $164 for cattle placed in October, assuming fed cattle prices remain mostly in the upper $150-per-cwt range during the third quarter. And current estimates put the breakeven price for November placements at more than $170, a significant red-ink risk for feeders.
SLAUGHTER CATTLE PRICES DROP COUNTER-SEASONALLY
Compounding the issue for cattle feeders is the current counter-seasonal decline in fed cattle prices. Cattle are trading this week in the Plains at $154 to $155 per cwt on a live basis, $5 to $6 lower than last week’s $160 to $161.
This week’s slaughter cattle price also is the third straight week of declines and is $8.00 to $9.00, or about 5.36%, below the record weekly Southern Plains average high of $163.77 set three weeks ago.
Many see the current drop in cattle prices as a delayed seasonal decline. It is coming about a month late because cattle feeders kept them on feed for an extra month to ply them with feed and pack on a few extra pounds.
No matter what the average numbers from K-State say, many feedlots are struggling to turn a profit. Sources say these feedlots are doing what they can by feeding cheaper corn to the cattle already on hand because the next set of calves will cost so much they will virtually guarantee a heavy loss.
But at some point, those cattle have to be marketed for slaughter, and this is what is happening now.
How long it will last and how deeply prices will plunge is up for conjecture, but sources say it seems evident that prices will not descend to last-year’s levels. Nor will they reach this year’s lows around $137, set the first week of January.
Market analysts say tightening supplies will take over within the next few weeks and propel slaughter cattle prices to new record highs by at least the fourth quarter, if not late in the third quarter.
BEEF PRICES FALL AGAIN
Beef prices fell again on Wednesday, with the USDA’s choice cutout value reported down $1.27 per cwt at $256.88, and the select cutout down $3.58 at $249.55. The choice/select spread widened again to $7.32 as more buying interest shifts to choice products for upcoming holidays.
The choice cutout was $5.09 per cwt, or 1.94%, below the $261.97 of a week ago. Select was down $6.22, or 2.43%, below a week ago.
Feeder cattle remain challenged by declining fed cattle prices, but tight supplies still rule. The CME Feeder Cattle Index for the seven days ending Tuesday was $222.97 per cwt, up $0.42 on the day while Aug futures Wednesday were down $0.17 at $214.37.