How long can cattle feeders fight the market?

Even with the feeder cattle market’s plunge, capital at risk is still high for cattle feeders.

Nevil Speer

October 8, 2015

2 Min Read
How long can cattle feeders fight the market?

The cattle market meltdown since early April has been historic from any number of perspectives. However, the most important outcome of the market’s demise during the past six months revolves around the levels of capital at risk in this recent downturn.

This week’s graph highlights the surging cost of feeder cattle in recent years. The illustration is based on monthly closeouts reflecting the aggregate cost of feeder cattle placements five months prior to closeout. The most expensive closeouts occurred in March 2015. Cattle sold then were placed roughly last October when the feeder cattle market peaked, with an aggregate value of over $4 billion.

The graph also depicts closeout gross profit, which is fed cattle value less purchased cost of feeder cattle. Gross profit peaked in 2014 and then plummeted sharply this spring, even with a strong fed market. Accordingly, Kansas State University calculates that closeouts began turning negative in February 2015. Clearly, that negative trend will continue, given the fed cattle market’s sharp plunge during September.

Aggregate Feedyard Closeouts

Most important are the general trends and rolling 12-month average. Cattle feeders are experiencing a strong downturn in gross profit that began in earnest with 2015. Meanwhile, that occurred against the most expensive feeders on record. As such, the gross profit ROI is exceptionally weak and trending in the wrong direction.  

The take-home is that it’s more than just the fed market that’s causing pain for cattle feeders. It’s a weak fed market occurring against high-priced placements. That’s really what drives the feeding sector to fight the market.   

Where do you see this trend headed? How much will the feeding sector fight the feeder market in the next several rounds of replacements? Ultimately, how much pressure will remain on the feeder cattle marketing going forward?  What are the long term impacts of 2015’s losses in the cattle feeding sector? 

Leave your thoughts in the comments section below.

You might also like:

15 photos showcase hardworking American ranchers

Genetic accident produces White Angus

What's the best time to castrate calves? Vets agree the earlier the better

Burke Teichert shares the secrets of a profitable cow

About the Author(s)

Nevil Speer

Nevil Speer serves as an industry consultant and is based in Bowling Green, KY.

Nevil Speer has extensive experience and involvement with the livestock and food industry including various service and consultation projects spanning such issues as market competition, business and economic implications of agroterrorism, animal identification, assessment of price risk and market volatility on the producer segment, and usage of antibiotics in animal agriculture.
Dr. Speer writes about many aspects regarding agriculture and the food industry with regular contribution to BEEF and Feedstuffs.  He’s also written several influential industry white papers dealing with issues such as changing business dynamics in the beef complex, producer decision-making, and country-of-origin labeling.
He serves as a member of the Board of Directors for the National Institute for Animal Agriculture.
Dr. Speer holds both a PhD in Animal Science and a Master’s degree in Business Administration.

Contact him at [email protected].

Subscribe to Our Newsletters
BEEF Magazine is the source for beef production, management and market news.

You May Also Like