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Feedlots Gain Profit Ground … For Now

Heading into summer, analysts with the Livestock Marketing Information Center say cattle feeding profits will be challenged by seasonal declines in fed cattle prices and the pricy breakevens purchased with record-high calf and feeder cattle prices.

It was a long time coming, but analysts with the Livestock Marketing Information Center (LMIC) say that in the first quarter of this year, lower feed costs and record-high fed cattle prices enabled cattle feeders to achieve the most profitability they’ve seen since the spring of 2010.

“On a quarterly basis, from the spring of 2011 throughout the summer of 2013, estimated cattle feeding returns in the Southern Plains (commercial feedlot with all costs included) had been in the red.,” LMIC analysts say. “Over that timeframe, record losses were posted by the U.S. cattle feeding sector. Last fall, monthly average closeouts began to show profits.”

According to Kansas State University’s Focus on Feedlot, steers sold in the first two months of this year had cost of gain below $100/cwt. for the first time since July 2011.

“But even with lower feeding cost of gain, profitability of cattle to be sold this summer quarter is expected to drop from recent levels and could revert back into the red,” LMIC analysts say. “Two factors will make profits difficult to achieve: 1) fed cattle prices normally drop into the summer quarter, and should again this year; and 2) feedlot breakeven sale prices incorporate record-high feeder cattle prices … In recent weeks, many yearling steers placed into feedlots had breakeven sale prices approaching $145/head.”

“With costs in the $129 to $130 range and fed cattle prices gyrating around $150/cwt., cattle feeders could be experiencing positive margins exceeding $200/head,” say analysts with the USDA Economic Research Service in April’s Livestock, Dairy and Poultry Outlook. “However, fed cattle prices could decline into the summer if they follow a typical seasonal pattern. This is especially likely with the record placement of cattle weighing more than 800 lbs. between December 2013 and February 2014 (feedlots of 1,000 head or more) … These cattle could create a bulge in market-ready supplies of fed cattle this summer, which could exert downward pressure on fed cattle prices.”

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