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Analysts with the Livestock Marketing Information Center (LMIC) say that softer fed cattle prices and increasing packer leverage, as cattle marketing becomes less current, suggests the value of additional pounds and delayed marketing is no longer worth the cost.
September 25, 2015
Fewer feedlot placements than expected in the monthly Cattle on Feed report last week offered brief market support, but increasing average carcass weights continue to set the stage for price erosion.
“Anticipated fourth-quarter fed cattle market improvement may be mostly or entirely wiped out if we continue to market excessively heavy cattle through the remainder of the year,” says Derrel Peel, Extension livestock marketing specialist at Oklahoma State University, in his early-week market comments. “The only real solution is to market our way out of this predicament. You can’t rely on lower placements to fix the problem; placements are already low and have been for many months.”
Moreover, he says growing feeder supplies indicate that placements will begin increasing in the coming months. “Will abruptly flushing heavy cattle out of feedlots ensure that feedlot margins turn black in the fourth quarter? The answer is that it is not guaranteed to fix margins but it seems increasingly clear that failing to do it will ensure that margins remain very red for the remainder of the year.”
High-priced feedlot replacements and relatively cheap feed made feeding cattle for longer periods and to heavier weights a logical strategy. Now, analysts with the Livestock Marketing Information Center (LMIC) say that softer fed cattle prices and increasing packer leverage, as cattle marketing becomes less current, suggests the value of additional pounds and delayed marketing is no longer worth the cost.
Reflecting on the most recent Focus on the Feedlot data from Kansas State University, LMIC analysts explain in the most recent Livestock Monitor, based on July close-outs, steers were on feed an average of 176 days, six days more than a year earlier. Heifers were on feed for an average of two days longer than last year. The only category of placements weights increasing year-over-year is that for cattle weighing 800 pounds or more. The average live weight of steers exiting feedlots in July was 1,421 pounds, which was 30 pounds more than the previous year.
“These factors are behind biologically important decreases in feed efficiency and increases in pounds of feed (dry matter) required per pound gain, which are also economically important,” LMIC analysts explain.
Even with less average daily gain and less efficiency in converting pounds of feed into pounds of beef, LMIC analysts explain that low feed costs remain an advantage.
“Feeding costs have been below those of 2014’s all year, and currently sit at $85.68 per cwt for steers and $89.67 per cwt for heifers, compared to $92.79 and $99.75 for steers and heifer, respectively, in 2014,” LMIC analysts say.
“It has been a challenging year for cattle feeders, and feedlots have struggled continuously with lousy margins,” Peel says. “The feedlot response to adverse market conditions has been to slow down feedlot turnover, adding days on feed and increasing fed cattle weights. This has resulted not only in growing feedlot inventories but a growing supply of extremely heavy cattle. Steer carcass weights for the year to date into early September were averaging 19 pounds heavier than last year. By the last week of August, average steer carcass weights were at 906 pounds, equal to the record weights last November. One week later, steer carcass weights jumped to 914 pounds, a new record and up 25 pounds year-over-year on a weekly basis. Carcass weights often peak seasonally in the fourth quarter which could push annual average steer carcass weights 20 pounds or more over last year.”
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