American cattle feeders are preparing to join their Canadian counterparts in something that U.S. producers haven’t experienced for long time: losses.
After 14 months of continuous profits, American cattle feeders are now figuring in losses on their balance sheets for this fall and winter.
Jim Mintert, a beef economist with Kansas State University, says the effect of high demand and low supplies for feeder placements as well as softening prices for fed cattle are going to drive feedlots “well into the red for the rest of this year.”
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“They’ll feel more like Canadian feeders for a while,” Mintert said.
“I’m thinking it could be as much as $100 US a head in losses for heavier animals in the coming months.
“The lack of Canadian supply of feeder cattle is compounding a problem that is already out there. Too few cattle, too many (feedlot) pens to fill.”
The Kansas economist says the problem for U.S. feedlots will persist until at least early 2005.
“A Canadian supply would help to ease the problem,” he added.
Dillon Feuz of the University of Nebraska agreed.
“We are staring at losses of between $15 and $63 (per animal) and the futures market supports this,” he said.
Projected feedlot returns generating the greatest losses in the Great Plains are on yearlings eating for less than 140 days and placed early in this fall’s calf run.
Losses on those animals are estimated at $62 per head.
“The best the (Chicago Mercantile Exchange) can do for feeders is to limit those losses to $30 to $50 per head. But for now feeders seem to feel it is more important to keep filling the pens and pencil in that loss for the time being,” Feuz said.
“After a lot of equity gains, producers are less likely to react immediately to market signals and will accept losses on those cattle.”
High prices for feeder-stocker cattle south of the border have also meant that feedlots wanting to fill their pens had to increase their ownership in animals dining at the feed bunks.
“More feedlots are increasing their risks,” Mintert said.
“Right now more cattle are owned (by feedlots) and cow-calf producers have been reluctant to retain ownership because of the lack of a (futures market hedge) to pencil in a profit.”
U.S. Department of Agriculture statistics in July appeared to suggest that cow-calf producers were finally beginning to retain heifers and ease their cow cull levels.
A lack of heifers entering the market along with the ban on Canadian feeder animals means competition for feeder cattle.
Tim Petry of North Dakota State University said the shifting market might buoy prices.
“Livestock auctions report that competition for better-than-average replacement heifers has been stiff. Five dollars (per hundredweight) to $15 was a common premium,” Petry said.
“That means further upward pressure on feeder cattle markets as lower priced heifers stop going into feedlots and head to pasture instead.”
Feuz said low corn prices – due to a record-high American crop and significant carry-over of feedstocks – would not ease the feeder cash crunch.
“For a change it doesn’t matter how low feed grains go, the losses are still there,” he said.
He pencils Nebraska feeder losses, similar to states in the region, at a low of $15 for late February and March, having eased $2.5 per cwt. last week as futures markets dropped slightly for that delivery time frame. For February losses are estimated at $52.55. In January and December losses fall into the $45 range, while short-keep steers of under 140 days lose $62.86 on average.
“Break-evens are going to be in the high $80s to low $90s (per cwt.) and sales (prices for fed cattle) are going to be in the low to mid $80s (per cwt.),” he said.
Some hope of higher prices for boxed beef may be on the horizon as the U.S. cutout, the price paid by meat wholesalers, “may have bottomed out in August and is beginning to strengthen slightly,” he said.
“This the longest run of continued profitability for (American) feeders that anybody can remember so a few months of losses aren’t likely going to reduce competition for (feeder cattle) in near term. Good news for cow-calf producers marketing this fall’s crop,” he said.
