Rising Feeder Prices Pinch Cattle Feeders

Cattle feeders can’t seem to catch a break.  The smaller cattle herd keeps replacement calf prices moving higher just as record corn yields are sending feed costs lower.

USDA reports show record-high feeder calf prices in nearly every weight category and nearly every major market segment of the country, and prospective breakevens must be calculated on every contemplated purchase of feeder cattle.  Prices, and the risk of disaster also make risk management a must-have portion of the business plan that many in previous generations had the luxury of avoiding.  There simply is too much at stake now.

And many cattle feeders are putting cattle on feed with projected losses, betting that fed cattle prices will continue to rise and make their investment profitable.  For many, their business plan is to keep cattle on feed all the time in order to participate in market rallies, hoping that over time it all pays off.

Graphs of feeder cattle prices for the Southern Plains, for instance, show no hint of stopping the trend toward new records nearly every week.  Last week, the average price for 700- to 800-pound medium and large No. 1 feeder steers was $249.56 per cwt, up $5.75, or 2.36%, from $243.81 in just one week.

And the sticker shock doesn’t stop there.  Last week’s Southern Plains steer price also was $83.55, or 50.3%, above last year’s $166.01, itself a record-high number.  To put matters further into perspective, last week’s price was $132.34, or 112.9%, above the previous five-year average of $117.22.

Those calves calculate to steep losses for the cattle feeding investor, and the loss prospect was made worse by this week’s slide in live cattle futures.

The CME Feeder Cattle Index for the seven days ended Tuesday was $244.04 per cwt, up $0.55 to a new record and well above the Oct futures close of $237.40, which was down $1.32 on Wednesday while all other feeder cattle contracts settled limit down.




Seemingly, the cash live cattle market is loathe to break out of a broad sideways channel.  Instead of carrying through with the upward momentum of last week’s move, live cattle in the Plains Wednesday were reported at $163 to mostly $164 per cwt on a live basis, steady to $1.00 lower than last week and near the top end of the price channel.  The bottom of this price channel is $152.53, set the last week of August.

Sources say meat buyers are digging in over further gains in beef prices, afraid to pass any more advances on to their customers.  Besides, seasonal increases in pork supplies and declines in prices mean meat buyers can resist higher wholesale prices.  They don’t care that packers are losing money.

But since packers are losing money on each animal slaughtered, and the fact that they have to answer to stockholders, means they will resist higher prices for slaughter inventory if they can.  They may cut back on slaughter rates, or even close a plant to staunch the flow of red ink, which will pressure cattle prices.




After a mixed market on Tuesday, the USDA’s boxed-beef cutout report Wednesday also was mixed with choice product continuing to advance on select, which was fading.

The choice cutout value was reported at $250.49 per cwt, up $1.08 on the day, while the select cutout was $235.44, down $0.64.  The choice/select spread widened to $15.05, and there were $150 loads of fabricated product sold into the spot market.