Cattle Feeders Face Steep Losses – Per Head Losses Could Climb Above $500 in October

Cattle Feeders Face Steep Losses
Per Head Losses Could Climb Above $500 in October
Cheryl Anderson DTN Staff Reporter
Mon Oct 19, 2015 07:55 AM CDT
OMAHA (DTN) — Cattle feeders are looking at the highest estimated losses since January 2009 as fed cattle prices have dropped drastically over the past month.

Losses in fed cattle have been the norm in 2015 despite lower feed costs. (DTN photo by Pam Smith)

Fed cattle prices declined more than $20 per cwt from late August to early October, and early estimates of September losses are as high as $350 per head, according to Purdue University ag economics professor Michael Langemeier in an article on the farmdocdaily website (…).

If the trend continues, October losses could soar to $550 per head. The article discussed the feeding costs of gain and net returns for cattle finished in Kansas.

Losses have been the norm in 2015 despite lower costs of grain, according to Langemeier. The feeding cost of grain dropped from $100 per cwt in 2011 to $92.35 in 2014, and it’s kept between $89.29 and $82.96 so far this year. The cost per gain is expected to drop even more in the fourth quarter of 2015 and first quarter of 2016 alongside corn prices, likely to be $75 to $80 per cwt.

Despite declining cost of grain, net losses were approximately $135 per head in 2012 and $115 in 2013. Net revenue in 2014 averaged $165 per head, ranging from a $280 per head profit to a $29 per head loss.

"Losses have been the norm so far in 2015," Langemeier wrote. Kansas feeders lost an average of $160 per head in the first quarter and $190 per head in the second quarter. The losses got a little better — $85 in July and $120 in August — before getting worse in September.

DTN Livestock Analyst John Harrington said cattle feeders were set to lose money in the last third of 2015 even if the market had followed its normal seasonal pattern of a midsummer low leading into a late-year high.

"I think late-year breakevens, ranging from $160 to $170, were simply too high given the realistic potential of the feedlot trade in the fourth quarter," Harrington said. "Cattle feeders were seemingly guilty of spending too much for feeders in the late spring and early summer."

So when the fed cattle market imploded in late August and September, profit potential went from poor to "train wreck," Harrington said.

"Feeding companies are now mired in red ink as deep as $400-500 per head. It’s the worst market mess seen in at least a decade," he said.

Langemeier noted that breakeven prices for the rest of 2015 do not include recent declines in feeder cattle prices since cattle to be fed in the remainder of 2015 have already been purchased. Breakevens for October through December are forecast at $163 to $166 per cwt.

Harrington said the silver lining for feedlot managers is that future breakevens have dropped hard over the last six weeks or so.

"If the fed market manages to recover into the $140-$150 range by the end of the year, cattle feeders could return to profitable operations by early 2016," he said. "Still, we require a rally of $20 or more from the most recent cash sales."

Cheryl Anderson can be reached at Cheryl.anderson.