May 18, 2012

 

 

As US beef packers resume profit earnings, feedlots remain in the red, and look set for continual negative margins into next year, due to high prices of feeder cattle, US farm officials warned.

 

The drop in US prices of fattened cattle, which have fallen more than 10% on Chicago's futures market from an early-March high, has helped packers return to profit earlier this month, the USDA said.

 

Packers had spent seven months operating in the red, with losses hitting a 22-year low of US$121.20 a head at one stage, according to data from Hedgers Edge, as they proved unable to pass on in full record cattle costs.

 

However, cattle feeders "continue to experience negative feeding margins" thanks to resilient costs of feed, with expectations of a bumper US corn crop still be realised in the silo, and resilient prices of feeder cattle animals for fattening.

 

Feeder cattle values have dipped by less than 6% from the early March high, supported by competition for supplies between feedlots and the ranchers rebuilding herds after liquidation during last year's drought in the southern Plains.

 

Indeed, feeder cattle prices look set to increase "over the remainder of 2012 and throughout 2013 in response to the tightest feeder cattle supplies in decades", USDA analyst Rachel Johnson said.

 

Analysts have noted signs including a lower rate of placement of cows on feedlots, and a 13.5% dip in beef cow slaughter since March, as signs of the quest to rebuild herds.

 

Meanwhile, although a sharp drop in corn prices looks to be on its way, this may also not kick in until late in the year and even then, the advantage will be tempered by elevated prices of vegetable proteins.

 

"Weaker corn prices are likely to be accompanied by relatively high protein-meal prices because of an apparent shift from soybean acreage to corn acreage," Johnson said.

 

The situation on negative feedlot margins "does not appear likely to improve until later in 2012 or early 2013", she added.

 

The comments come ahead of USDA data on Friday expected to show placements on feedlots tumbling 11.6% last month from April 2011.

 

"If this estimate is correct, it would imply April placements of about 1.578 million head, the smallest placements since December 2009 and the smallest April placements since 2008," a report from Paragon Economics and Steiner Consulting said.

 

Frontier Risk Management estimates the decline could be as large as 17.1%.

 

Feedlots are not the only cattle sector feeling the pinch, with many ranchers also suffering, the US Federal Reserve said on Wednesday.

 

"Many livestock operators that culled herds during the drought were not rebuilding cow inventories, partly due to high feed costs and limited grazing," the Fed's Kansas City bank said.

 

However, ranchers, largely in more northern states, who managed to hold on to breeding cattle last year are faring well.

 

"The cow-calf sector is enjoying high prices for both cull cows and feeder cattle," the USDA's Johnson said.