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Producers wonder when cattle price bubble will burst

Carol Ryan Dumas
Record-breaking cattle prices, bringing strong profits up and down the beef supply chain, have many concerned about a market downturn. Feedlots are the most at risk but have a pretty good cushion through October.

With record high prices, folks up and down the beef supply chain don’t have much to complain about, but many question how long markets can sustain such lofty prices.

Prices are being driven by tight supplies, herd-rebuilding efforts and strong demand, but many are asking how long that demand will last at unprecedented prices.

Record prices across the supply chain are working for everyone in the industry. John Nalivka, owner of Sterling Marketing, a Vale, Ore., consulting firm for the red meat industry, said everybody’s making money, but as prices continue to go higher, worry increases that the bubble is going to burst.

“I’m not cynical. I’m pretty positive,” he said. “A couple of years ago I would have said it’s going to fall apart.”

While cow/calf producers are in the drivers’ seat, with tight supplies expected to continue for some time, others in the supply chain are more susceptible.

Feedlots have been making well over $200 per head since February. But, despite a drop in corn prices, their break-even point is increasing as feeder cattle prices rise, Nalivka said.

Break-even on fed cattle now being marketed for slaughter is $136 per hundredweight, making a nice profit for feedlots selling at $156 a hundredweight. But the break-even on feeder cattle going into feedlots now at $214 a hundredweight will be $161 a hundredweight when they go to slaughter in December, he said.

“I’m not going to say we couldn’t have $160 cattle,” he said. “My forecast is $158.”

That could push feedlots into the red, he said.

Things could get critical in November and December. If a $145 fed cattle price runs up against a $160 breakeven, they’d be losing $280 a head, as much money as they’re making now, he said.

At Murtaugh, Idaho, producer Greg Garatea buys calves and feeds them to about 800-850 pounds, working the margin.

He’s selling in a high market but also buying in a high market. His required capital has jumped 60 percent compared with a few years ago, and on average his margin stays the same, he said.

But with the high price of calves, he’s risking that much more to generate the same margin, he said.

“My risk is a lot higher than the reward right now,” he said.

He wonders at what point consumers will turn away from beef and leave him sitting on high-priced calves.

“That’s what scares me,” he said.

He can offset some of that risk with risk-management marketing tools, but it’s going to come to a point where consumers say ‘no more,” he said.



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