The latest fed-cattle rally has taken feedlot margins well into the black for the ninth straight week, while packers had their worst margin week in months, according to the Sterling Beef Profit Tracker, published by AgWeb.
For the week ended Jan. 20, the USDA’s five-area direct price of $122 per cwt, boosting average calculated unhedged profits at $171.82 a head, up $54.04, or 45.9%, from $117.78 a week earlier, the Profit Tracker said. Feedlot margins also were up $35.89, or 26.4%, from $135.93 a month earlier. In the same week a year earlier, the margin was a minus $202.8 a head.
To arrive at the latest calculated margins, the Profit Tracker used a USDA five-area average fed cattle price of $121.98 per cwt for choice steers. This was up $3.04, or 2.56%, from $118.94 the previous week. It was up $6.52, or 5.65%, from $115.46 a month earlier, but was down $12.15, or 9.06%, from $134.13 a year earlier.
Estimated average packer margins declined $28.50 a head, or 59.4%, in the latest week to $19.49 a head from $47.99 a week earlier. From $149.00 a month earlier, packer margins have dropped $129.51, or 86.9%, a sum that is more than likely to get the attention of the cattle-buying office.
Estimated packer margins also were down, $115.08 a head, or 85.5%, from $134.57 a year ago, the Profit Tracker said.
LOOKING AHEAD
Looking ahead, feedlots may make money for a while, but slowly rising estimated feed costs and possibly tightening supplies of feeder cattle in coming months may take a large bite out of their wallets.
The Profit Tracker projected an average feedlot breakeven price of $100.74 per cwt for 750-pound calves placed on feed during the week ended Jan. 20. This looks good when compared with this week’s breakeven of $109.57, but fed cattle prices must hold, and some traders and analysts are expecting fed cattle prices to challenge feedlot cost of gain by late summer or fall.
To arrive at the projected breakeven price for 750-pound steers placed on feed in the latest week, the Profit Tracker used a feeder steer price at the Oklahoma City stockyards of $132.16 per cwt, which has held relatively steady for the last month, varying by only about $0.20 per cwt.
The Profit Tracker also projected a total feed cost of $1,403.30 a head for cattle placed on feed that week, compared with 1,402.17 a week earlier and $1,393.03 a month ago. This is down from the $1,525.61 used to calculate the latest weekly profit margin.
For packers to keep making money, fed cattle prices either must come down or beef and byproduct prices need to find some footing. The latest Profit Tracker used a choice steer cost of $121.98 per cwt out of Texas and Oklahoma with a beef cutout value of $190.97 per cwt and a drop credit of $174.23.
CASH CATTLE TRADE STEADY-HIGHER
Average fed cattle exchange auction prices Wednesday were $1.45 per cwt higher at $121.97, versus $120.52 a week earlier.
Cash cattle then traded at $121.50 to $124, mostly $122, on a live basis, up $0.50 to $1.
Dressed-basis trades were reported at a steady $193 to $194 per cwt.
The USDA’s choice cutout Monday was up $0.65 per cwt at $193.35, while select was off $0.01 at $188.93. The choice/select spread widened to $4.42 from $3.76 with 54 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Friday was $131.20 per cwt, down $0.51. This compares with Monday’s Mar settlement of $123.90, down $3.55.