As 2015 comes to a close, eyes are fixed on what will happen in agriculture in the coming year, including the cattle feeding industry.
Glynn Tonsor, livestock economist for Kansas State University and K-State Research and Extension, said based on the most recent “Focus on Feedlots” survey, the industry looks to be particularly bleak over the next six months.
The estimated return in October for steers was nearly a $400 loss per head, the largest loss on record since January 2002. Currently, the net return projected for November closeouts for steers is a loss of $547 per head.
“For the balance of 2015, I am projecting more than $446 in losses per head,” Tonsor said. “It is important to recognize this is using a cash strategy, where you are paying cash for feeder cattle based on what the market was, paying the cash price for corn and getting the market cash price.”
Tonsor stressed that if cattle feeders utilized price risk management strategies, this projection does not necessarily apply to their situation.
“Anyone who locked in corn for their feeder cattle or fed cattle would have a different experience, maybe better or maybe worse,” he explained. “But, unless you protected yourself against a fed cattle (price) decline at or near the time of placement, you’re going to experience substantial losses in these fourth quarter closeouts.”
Projected returns for 2016
Tonsor projected the environment to be slightly better by June 2016, with a projected loss of $67 per head. He stressed that while there is a projected loss, the margin for error given variation across operations in cost of gain is a easily a $50 per head movement either way, which makes the situation a potential breakeven for some operations.
While there isn’t much of a change in projection of fed cattle prices for 2016, the cost of feeder cattle at placement is projected to change substantially.
“For the November (2015) closeouts, I am assuming someone paid $219 for feeder cattle,” Tonsor said. “In the June 2016 closeouts, I am assuming they pay $150 for the animals replaced. I’m using June to make my point that we have the price of feeders down, corn prices haven’t changed much, so the cost of gain is such that we get closer to a breakeven projection.”
It takes approximately six months to finish an animal, he said, so those involved in the cattle feeding industry can look ahead in this is a six-month cycle, based on projections, to plan and make buying and selling decisions.
While the immediate future for feedlots will be rough, Tonsor added that he holds hope for the second half of 2016. Beef demand, both domestic and international, could help the industry improve prices, perhaps not in the next month or two but further into 2016.