Faltering fed cattle prices, due to coronavirus developments, have ratcheted-down estimated profitability for nonhedged animals to be closed out in coming months. Still, fed cattle sold most months this year are forecast to be profitable. Recent futures market prices indicate red ink for closeouts this summer.
The Livestock Marketing Information Center (LMIC) has been estimating monthly cattle feeding returns since the mid-1970s. Those estimates assume feeding-out a 750-pound steer in a commercial Southern Plains feedlot and include all costs of production. The estimates are not survey-based and presume normal weather conditions. Cash prices are used, that is, fed cattle prices and feedstuff costs are not hedged.
Estimated cattle feeding returns tend to be quite variable; this year looks like it will bring more of the same. In 2019, those monthly returns averaged about $9.50 per steer, ranging from $180.92 for an animal sold in December down to -$152.85 for September. Over the prior five years (2014-18), the annual average was about $23.00 per steer. The 10-year per animal average was about -$7.00.
On average, February’s estimated closeout profitability was not as good as expected just a few weeks ago and came in below January’s. For steers sold during January of this year, the LMIC estimated profitability at $150.00-151.00 per head. A month ago, the LMIC projected that the February number would come in at $136.00-140.00 per steer. If the cattle were not hedged, that turned out to be optimistic. Hedged cattle will return excellent profits through June sale dates.
If the cattle were not hedged, that turned out to be optimistic. Hedged cattle will return excellent profits through June sale dates.
Between the first full week of February and the last week of the month, Kansas fed steer prices fell by nearly $6.00 per cwt, or for a 1,350-pound steer by $81.00 per animal. LMIC put the final February profit at about $86.00 per steer. Further, projected returns into the summer months were lowered.
Breakeven fed steer sale prices have been moderating along with feeder cattle prices. Feedstuff costs (corn, hay, and grain sorghum) have risen slightly during recent months, a trend that may continue. For steers (750 pounds) placed on-feed in February, which will have a sale date of August, the breakeven based on current feedstuff costs is $109.00 to 111.00 per cwt.
Given the structure of the markets, two types of feedbacks are expected. First, whenever cattle feeders are faced with a wide basis (the difference between the cash and futures prices), they will aggressively market fed cattle, especially their animals that are hedged. Second, the lack of profitability currently depicted for fed cattle to be sold this summer (breakeven sale prices above what summer live cattle futures are offering), is likely to be a factor dampening placements of animals into feedlots. —James Robb, LMIC senior economist
