USDA: Cattle margins improving rapidly
Carol Ryan Dumas
Margins in the cattle sector have improved rapidly due to lower feed costs, high feeder calf prices and improved pasture. Packers, however, continued to be squeezed, despite record and near-record retail beef prices.
Declining feed costs, recovering pastures and record feeder calf prices are improving margins for U.S. cattlemen and giving them more options.
But despite somewhat improved wholesale cutout values and record and near-record retail beef prices, packer margins are still being squeezed.
What’s ahead for both sectors will depend a lot on weather, according to USDA’s Economic Research Service in its December Livestock, Poultry and Dairy Outlook.
Good corn yields in 2013, abundant supplies and the relaxation of the Renewable Fuels Standard for ethanol use have reduced the price of corn by almost one-third from August. In addition, the majority of the winter wheat crop in Texas, Oklahoma and Kansas – particularly in grazing areas – is in mostly fair to excellent condition. Precipitation through the winter will also benefit pastures next spring, enhancing the outlook for summer grazing, ERS reports
Wheat-pastured cattle should be off to a good start. If crop conditions improve or don’t deteriorate, feedlots could see an influx of large wheat-pastured feeder cattle in March.
That influx could be mitigated if replacement heifers account for a significant proportion of cattle on wheat pasture, and winter weather could positively or negatively affect gain in cattle on wheat pasture or in feedlots.
Prices for feeder cattle have been at record-breaking levels throughout the fourth quarter of 2013, reaching an average monthly price of almost $163 per hundredweight in November for seven-weight steers. Those prices are due to animal scarcity and a response to declining corn prices and the potential for improved cattle-feeding margins.
Break-even cattle-feeding costs for cattle placed in Southern Plains feedlots are projected in the neighborhood of $127 to $128 per hundredweight through at least the first quarter of 2014. With first-quarter fed cattle prices expected to average in the low $130s, cattle feeders could see near break-even to positive margins during that period.
While conditions have improved for cow/calf and feedlot operators, improvements for packers have been slow to appear. Packers could see positive margins in early 2014 if wholesale cutout values increase along with fed cattle prices or if retail beef prices continue to increase as anticipated.
Average monthly retail choice beef prices reached an all-time high in October, and retail beef, pork and poultry prices are all at record or near-record levels.
Fed-cattle dressed weights are expected to decline in 2014, however. The loss of beta agonist zilpaterol, which boosted weights by 30 pounds or more per animal, is one factor. Another is that lower corn prices will reduce the incentive to place heavier cattle in feedlots, resulting in lower finished weights.
It’s expected that fewer total cattle will be slaughtered and beef production will be lower in 2014, but drought could alter that expectation by forcing cattle into feedlots that would otherwise be on pasture.