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Long Term Effects of Blood Bath in Fed Cattle

B

Brad S

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Feb 15, 2005
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west of Soapweed
Average per head losses for fed cattle marketed in January exceeded $500. Cattle marketed in March are projected to only lose $350 per head ("only lose $350"). The blood bath has lasted so long and been so deep, I can't imagine the cattle feeding industry can sustain these losses and continue to operate without major format changes.

So I've been trying to postulate or anticipate changes. Clearly some feeders have been severely injured financially, which should reduce competition for feeder cattle at the sale barn or in the country. And lenders have resurrected old demands to establish hedges when cattle are placed. Cattle that are hedged should be less likely to be over fed chasing break even. Fact is, it's been along time since any placements could have hedged a break even at placement. Self preservation should reduce or eliminate placing cattle that won't work, betting on the come; lenders certainly have this in mind.

I suspect cheap corn and a return to prices that allow a hedgable profit may return some cattle feeding to the corn belt, but I hear cornbelt farmers are breeding heifers,and we know a lot of heifers are not in the supply chain.

It seems like the losses in the feed lots are so bad, the logical corrections just seem inadequate. I'm perplexed about the long term effects on the industry.
 
Cheaper feeder cattle seems like logical conclusion to me. Either that or lenders are going to close the feedlot down. The supply of feeder cattle outside the feedlot is growing and I think it will for some time yet.
 
Well....

We held calves over and sold them in late February. We did well. Mainly, Cattle have to weigh a lot before discounts apply. This is in part due to the strong dollar (imported lean is cheap and they can blend it with domestic fatter trim).

This year, I read somewhere COF numbers are up 1% from last year. Average carcass wts are pretty high as well. Cheap feed equals cheap feed is a very old saying. It's because it encourages feeding.

If you are up for it, retaining ownership might be a good option if you feel the market has hesitant bidders. I've actually bought some nice open heifers because of this. I feed out my own and have for a long time. We direct market most of our cattle and go to Tyson with the rest. I'm not so certain how I'd feel with someone else feeding them for me. LOL, Likely they'd do better. I just have always liked sorting my own fats. When I worked in a yard, I saw too many cattle put on a truck to fill it. They weren't always ready.

As far as hedging, we have a pretty good source of cheap feed and with the direct marketing, I haven't figured out a good hedge. Had a group look at it for me and they couldn't either.
 
"As far as hedging, we have a pretty good source of cheap feed and with the direct marketing, I haven't figured out a good hedge. Had a group look at it for me and they couldn't either."

You have that right - low cost of gain is the best hedge. Makes me wonder why more feeding hasn't moved back to the cornbelt. Obviously excellent climate down in the panhandle, nothing else down there serves feeding cattle. Well, cheap labor.

As for sorting fats, do you ever work with breathour's people? Sure take the guessing out of the stick. For me, after the third critter, they start to all look alike - I used to be an expert running the in and by gate arguing with my dad about his sorts.

If you got out of this winter wreck ok then you must be Houdini. I think we're already seeing calves that will come close to working -been 2 years at least since I've seen that. I've heard many bankers want a confirmed exit strategy before lending money. I had my first "all mine" cattle in the feedlot when the dairy buy out hit in "86" - talk about knowledge bumps. They were steins at home & dad talked me off the ledge. With cheap cog, I gave away some labor - well, traded labor for education.

We'll know it's safe to get back in the water again when there's money in the upgrade cattle.
 
Ouch - limit down up and down the board.
Some are blaming the corn rally, but higher priced corn makes smaller carcasses so I'm not buying that line.

Today, june 2017 live cattle closed around $1.06 and with the steady increase in corn price this spring, new cattle cog is near $.90 - remember a wide spread between fed beef and cog really increases the price of calves. (I use the June 2017 fed market as a likely market for calves weaned this fall)

1300# June fat @ $1.06 = $1378 - $630 (700# x $.90cog) makes fall run 600# steers cost $750. Sorta makes those madden contracts worth $350 now.

Feds will be worth more than $1.06 in June if corn stays high
 
I guess everyone holding calves or with naked yearlings still turned out should take stock of your sack, because looks to me like it's going to be a summer in which we'll really have to nut-up to stay long without some protection. Poignant words from Cassie Fish yesterday:

"...Thanks to the horrible futures market action, despair over what lays in store for this market in July and August is growing."

With that said, if I got out of long positions in the yearling pasture now, I'd probably spend it all buying that June 2017 fat board - LOL. May as well ride it out at home as to blow it in Chicago.
 
The U.S. Corn crop is going to be between really good and better than that. So if you don't have a hedge there, this is the wrong part of the cycle to worry about that. If corn stays as high as it is, fed beef should come up quite a bit as carcasses shrink. I'd think most of the bad news is in the market and probably over done. the smart guys would say sell some and hold some. With light calves you have options even if shtf
 
Forgive my ignorance, but if feeders have been losing that kind of money, how can they stay in business? I wonder if it really is that bad? I understand the closeouts are ugly, but how important are they when considering the cost of replacements? In my mind, as long as the lbs sold cover the cost to replace them (feed + vet + interest + death loss + replacement critter) then money was made, or at least cash flow was positive. Equity may have been lost, but that seems to rise and fall by the day. Positive cash flow seems to be more important. I guess if you are leveraged to the hilt to keep the yards full, equity is important to the banker? Not a great position to be in, but maybe that's more common than I realize.

At the bottom of this commentary they have current & projected closeouts:
http://www.agcenter.com/newcattlereport.aspx

What I see is selling fats today for $1727, buying replacement cattle for $1100, and $518 in feed costs. That leaves $109 in the feeder's pocket for profit. That's not so bad, better than 13% APR if I figured it right on 150 day feeding period. I don't follow it close enough to know if that relationship stays the same or not though.
 
Feeders indeed have been losing literally hundreds per head and that's exactly unsustainable. That was the original point, if feeders are overpaying, might be a good time to lay some off. Fast forward a few months and lots has changed - including, maybe especially the unbridled optimism of the feeder (yes bankers have a lot to do with reining in the silliness). I haven't fed anything in 28 months. Seems if I get a pen together, they've been too valuable for me to feed.

I like to use the equation fats - replacements = made money too. But I have a stodgy old banker that feeds cattle himself. When he's smiling, he ain't buying my bs.

My point was about using the position of stocker/feeder/packers to get an objective valuation of calves. When packers and feeders will over pay for cattle, it's a good time to reluctantly give in and contract or hedge or lay some off however.
 
The equity being lost in the feedlot sector currently will be reflected in the future prices of feeder cattle. Bankers are going to be more than a little gun shy going forward. If you are a cattle feeder and have been able to avoid taking a bullet in the last 12-15 months you are in the minority but there will be better days ahead. At least that is what I keep telling myself.
 
Yesterdays close made me vomit in my hands. It looked like the rope broke in Aug feeders. The real bloodbath may have just begun. You knock the Dow down a couple thousand and corn go to 6 and it will be ugly.
 
WB said:
The equity being lost in the feedlot sector currently will be reflected in the future prices of feeder cattle. Bankers are going to be more than a little gun shy going forward. If you are a cattle feeder and have been able to avoid taking a bullet in the last 12-15 months you are in the minority but there will be better days ahead. At least that is what I keep telling myself.
Click to expand...


Explains a lot. Corn price cost feeders $15 so far. I don't know why Feds are down so low, but I think the record high prices of the last 3 years have hurt beef demand (lower prices should be moving beef). This trouble is being accutely felt by the cowman - this is what wb was noting.

This would be a good place for the check off to really get busy, but a suitable response would cost hard cash. The check off has performed extremely well with diminishing real dollars. Now the check off needs to remind people the entertainment value of sharing a nice meal in "hard times" (be very subtle noting hard times but damn sure don't say it)
 
Brad S said:
"As far as hedging, we have a pretty good source of cheap feed and with the direct marketing, I haven't figured out a good hedge. Had a group look at it for me and they couldn't either."

You have that right - low cost of gain is the best hedge. Makes me wonder why more feeding hasn't moved back to the cornbelt. Obviously excellent climate down in the panhandle, nothing else down there serves feeding cattle. Well, cheap labor.

As for sorting fats, do you ever work with breathour's people? Sure take the guessing out of the stick. For me, after the third critter, they start to all look alike - I used to be an expert running the in and by gate arguing with my dad about his sorts.

If you got out of this winter wreck ok then you must be Houdini. I think we're already seeing calves that will come close to working -been 2 years at least since I've seen that. I've heard many bankers want a confirmed exit strategy before lending money. I had my first "all mine" cattle in the feedlot when the dairy buy out hit in "86" - talk about knowledge bumps. They were steins at home & dad talked me off the ledge. With cheap cog, I gave away some labor - well, traded labor for education.

We'll know it's safe to get back in the water again when there's money in the upgrade cattle.
Click to expand...


I tend to see cattle feeding in areas where by product feeds are viable long term. Education is expensive no matter where you get it.

Never heard of breather's principle. My eyes tend to work pretty well. I look for and sort differently for my direct marketing. They aren't as much fans of fat as Tyson.
 
Dr brethour designed an ultrasound program to predict carcass traits with astonishing accuracy. You know the saying "every hand is a winner, every hand's a loser" ? If you know how long to feed them and which grid to submit them, it really helps. Doc is gone now, but his people still offer the ultrasound. Doc won Denver dressed cattle pen so many times they should have changed the name of the award.
 
http://beefmagazine.com/americancowman/genetics/evolution-carcass-ultrasound

a BEEF article about Dr. Brethour and carcass ultrasound
 
What a difference s couple days makes: over mon and tues, corn is off $.40
I think this sell off is overdone too - some of the knowed up guys think the acreage report in a week is bullish corn. Off $.40 will sure help some calves.
 
Well, then No, I don't use the Brethour Method.

When I was strictly selling to Tyson on the grid, I consistently hit 85 percent choice. The national average is somewhere around 60 percent. So, I think I did ok.

With direct marketing, I am doing a quite a bit leaner target and sending those I don't have a home for to Tyson after feeding them out a bit more.
 

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