Drought in Southern Plains pushing up supply of cattle
By CAROL RYAN DUMAS
Lower fed cattle prices and a higher beef cutout put packers back in the black last week, profiting about $6 a head.
But those lower fed prices and rising feeder cattle prices have thrown feedlots into the loss margin by nearly $100 a head, experts say.
Packers had been caught between fed cattle prices and wholesale beef prices and were losing as much as much as $96 per head a month ago, said John Nalivka, owner of Sterling Marketing, a Vale, Ore., economic consulting firm for the red meat industry.
More cattle in feedlots and heavier fed cattle had packers turning the corner on losses last week. A beef cutout price of $190 per hundredweight, up from $177 two weeks ago, also helped, said Derrell Peel, Oklahoma State University extension livestock marketing specialist.
"There's plenty of (fed) cattle out there, and available feeder cattle supplies continue to decline," Nalivka said.
Choice steers sold at an average $119 per hundredweight last week, down from a record peak of $130 for the week ending March 3.
"I doubt we're going up to where we were at the peak. Feeders are in the red by $100 a head," he said.
And that is likely to get worse.
Breakeven on feedlots was running about $120 per hundredweight. Last week, that jumped to $129.50, $10 more for cattle placed last week. Those cattle are set for slaughter in September, and with his forecast September choice steer price of $125.50, it'll keep feeder losses at $55 a head, Nalivka said.
He's forecasting feedlot breakevens in the low $130s for July and August and the mid to high $130s in the fourth quarter.
"That creates a lot of potential for losses," he said.
That could mean potential losses of $150 to $200 per head on fed cattle, he said.
He's expecting feeder cattle prices to remain strong and breakevens to remain high. Better fed prices aren't expected till spring, with the futures settlement price on Tuesday at $126.40 for February and $127 for April, he said.
"That would be getting back in the ballpark if we continue with feeder cattle so high and keep raising the breakeven," he said.
And while packers are now out of the red, Nalivka is only forecasting their profit margins at $7 a head in May, $15 a head in June, and $7 a head in July.
"It's a fairly tenuous situation," he said.
The winner in the short run has been the packer, pushing fed prices down, Peel said.
Drought in the Southern Plains saw a lot of placement of light cattle into feedlots between July and October last year.
"It'll take into June sometime before we get through all those cattle," he said.
So there's a little bulge in the supply of fed cattle short term, he said.
He doesn't see fed prices falling much further if summer grilling season takes off Memorial Day weekend. But those prices may not have a chance to improve for another 35 to 40 days, he said.