2012 a year of record  cattle prices and record feedlot losses | TSLN.com

2012 a year of record  cattle prices and record feedlot losses

Dillon Feuz
for Tri-State Livestock News

This year is almost in the books with only a few more weeks left to trade cattle. I thought it might be worthwhile to review the year and maybe take a peek at what 2013 might hold.

Through the end of November, Nebraska live cattle prices have averaged $122.64 per hundredweight for the year. December prices are likely to raise that average a little higher. That will be the highest annual average fed cattle price. Last year set the previous record at $115 per hundredweight. This year’s prices have been 6.6 percent higher than last year’s prices. Most of that price increase can be attributed to the relatively tight supply of cattle, but beef demand as also remained strong and will likely show a small increase in 2012 relative to 2011.

Feeder cattle prices have also been higher this year, again breaking the record high prices of the previous year. The Nebraska average price for 800 pound steers through November of this year has been $149.36 per hundredweight. That compares to the 2011 annual average price of $135.14 per hundredweight. That price increase is a 10.5 percent increase from 2011.

Since the bulk of calves in the north sell in October and November, I looked at 550 pound steer prices during that time period this year compared to the same time period in 2011. This fall, 5-weight steer calves averaged $166.21 in Nebraska compared to $159.25 a year ago. That is a 4.4 percent price increase and is a record high price. Other calf markets showed a similar price increase. For example, 5-weight steer calves at Salina, UT, averaged $145.52 this fall compared to $138.55 last year; a 5 percent price increase.

Do these record high cattle prices also imply record profit levels for producers? Short answer: NO. Identifying ranchers’ costs is a difficult process. The costs differ considerably from one operation to the next based on resource base and on management. However, when I consider what has happened to fuel costs, hay costs, and any feed supplement costs, I am fairly certain that most ranchers saw more than a 4.4 percent increase in their costs this year. Factor in the drought, which would contribute even more to feed costs, and it is likely that at the end of the year, most cow-calf producers will probably be less profitable in 2012 than they were in 2011. However, at least in the cow-calf sector of the industry, most producers will probably be profitable in 2012.

The feedlot sector is a much different scenario. While feedlots sold fed cattle for record prices, they also paid record prices for feeder cattle and corn prices were also higher than the prior year. The result is that returns to feeding an 800 pound steer to slaughter have averaged about -$110 per head in 2011; that is based on buying feeder cattle at the average market price in Nebraska, buying corn at the average cash cost in Omaha, NE, and selling fed cattle at the average live price for Nebraska. This year’s losses in the cattle feeding industry may exceed the losses sustained in 2008. In 2011, feedlots were probably close to break-even, while 2010 was a profitable year with returns close to $75 per head. I actually looked at feedlot returns for the last 10 years and over that time they have varied from about $175 per head in 2003 to -$110 per head this past year. The average has been right at break-even for the last 10 years. However, the last 5-year average has been about -$40 per head.

Looking forward, 2013 will probably be more of the same. Calf and feeder cattle prices will likely be even higher next year. There is just such a short supply of feeder cattle because of reduced cow herd numbers, these prices will be bid higher. If corn production is anything close to normal next year, then corn prices should be lower and this will also support higher calf and feeder cattle prices. Because of the relatively short supply of cattle, there will be fewer cattle in feedlots and fewer fed cattle to sell, and so fed cattle prices may set yet another record in 2013.

If the drought conditions moderate in 2013, then cow-calf producers will likely see higher profits next year. Stocker operations may or may not be profitable depending upon their individual buy-sell margins. That is always the nature of that industry. However, given the strength of heavier feeder cattle prices relative to calf prices, I would anticipate that most stocker operators should see positive returns. Feedlots will likely still struggle to see positive returns. I know we are starting to take feeding capacity out of production; that is a difficult process as it usually involves forced and not voluntary liquidations. I would expect there are still a couple of difficult years ahead for cattle feeders.

As I think about the record fed cattle prices, and yet returns to cattle feeding I think about the poem “Casey at the Bat”. The last few lines are cited below:

“Oh, somewhere in this favored land the sun is shining bright;

The band is playing somewhere, and somewhere hearts are light,

And somewhere men are laughing, and somewhere children shout;

But there is no joy in Mudville – mighty Casey has struck out.”

by Ernest Lawrence Thayer

Perhaps that last line should read: but there is no joy in feedlots – profits have gone out.