The question of why beef packers are paying higher prices for fed cattle and boosting the slaughter rate in spite of higher slaughter weights can be summed up in one word – profits.
Estimates made by John Nalivka, president of Sterling Marketing Inc., and author of the weekly Sterling Beef Profit Tracker, point to very positive packer margins over the last month.
The Profit Tracker, which is published by Drovers, estimated packer profits of $180.19 a head last week, down $22.24, or 11.0%, from $202.43 a week earlier and down $1.28, or 0.71%, from $181.47 a month earlier but up $169.50, or 1,585.6%, from $10.69 a year ago.
Nalivka’s packer margin estimates for last week were based on a Texas-Oklahoma negotiated cash price of $104.48 per cwt, compared with $99.30 the previous week, $102.78 a month ago and $137.26 a year ago. A beef cutout price of $179.43 per cwt was used in last week’s calculations versus $178.06 a week earlier, $186.86 a month ago and $217.66 a year ago. He figured a drop credit of $173.30 per head last week, compared with $172.39 a week earlier $170.10 a month earlier and $163.61 a year earlier.
STORY DIFFERENT FOR FEEDLOTS
But while packers were thought to be making hefty profits on each head slaughtered, calculations showed feedlots were faring far worse.
The Profit Tracker estimated feedlot margins on unhedged cattle sold last week at a minus $50.52 a head. This is $143.00, or 73.9% better than the $193.52-a-head losses seen the previous week. It also is $19.29, or 27.6%, better than the $69.81 losses of a month earlier and $193.73, or 80.3%, better than the $241.25 losses of a year earlier.
To arrive at the new projected average losses, Nalivka used the USDA’s five-area direct fed cattle price of $104.48 per cwt, a feeder steer cost of $139.90 and an estimated feed cost of $301.88. This brought the total cost to $1,505.57 a head for a calculated breakeven price of $108.13, versus the sale price of $104.48.
Things look a little more promising for the profitability of calves placed on feed last week. The Profit Tracker reported an Oklahoma City auction price for 750- to 800-pound steers at $125.19, with an estimated feed cost of $252.55 a head for a total cost of $1,336.99. This breaks down to a breakeven cost of $95.96 per cwt when these calves mature.
The relative cost for cattle sold to packers last week had steers at 72.01% and feed at $20.05%. A month earlier, the relative cost was steers 73.32% and feed 18.69%.
For the year, the Profit Tracker estimated feedlot margins at a minus $53.50 a head with 2017 margins at a plus $80. Both were better than the 2015 margin of a minus $144.23 a head, and all fell short of 2014’s plus $191.45.
CASH CATTLE MARKETS QUIET
Cash cattle markets Tuesday were quiet with no bids and offers around $108 to $110 per cwt. Prices last week were mostly $105 per cwt on a live basis and $164 dressed. This followed light action earlier in the week at $102 to $104 live and trade the previous week at $98 to $102 live and $154 dressed.
The USDA’s choice cutout Tuesday was $0.77 per cwt higher at $185.53, while select was up $0.31 at $173.31. The choice/select spread widened to $12.21 from $11.75 with 77 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Monday was $125.16 per cwt, up $0.49. This compares with Tuesday’s Nov settlement at $126.17, up $4.32.