CATTLE FEEDING BREAKEVENS
Breakeven sale prices continued to ratchet up for cattle placed into feedlots during October due to higher feeder cattle prices. In the Southern Plains, monthly average 700-to 800-pound steer prices in October were over $118.00 per cwt. in major markets. That was the highest for any month since August 2004 and the second highest ever recorded. Calculated breakeven sale prices suggest red ink for most cattle closed out for the first several months of 2006.
Even in the face of declining corn prices breakeven sale prices have moved up in recent months. A 750-pound steer placed in October would be expected to reach market weight in February. Based on recent corn and other feedstuff costs, that animal in a commercial Southern Plains feedlot has an estimated breakeven sale price of $96 to $97 per cwt. In contrast, steers scheduled for closeout in November of this year mostly have estimated breakeven sale prices of $90 to $91 per cwt.
Most slaughter steers sold in October lost money. Based on placement of a 750-pound steer in a commercial Southern Plains feedlot and considering all costs of production (including cost of feeder steer), negative returns of $50 to $60 per steer were common for October closeouts. Unless slaughter cattle prices are well above current forecasts, at times in early 2006, losses could approach $100.00 per steer.
For the year, 2005 will go down as rather disappointing for cattle feeders. Feeders that sold slaughter steers each month will have posted positive returns for only 3 or 4 months and average losses are projected to be $35 to $40 per steer sold. In 2006, positive cattle feeding returns will likely only occur with lower feeder cattle prices.
Source: Livestock Monitor, 4 Nov 05, Livestock Market Information Center, Denver, Colorado
posted by Dr. Harlan Hughes 3:23 PM
Key To Creating And Maintaining A Successful Ranch Business In The Years AheadA Golden Oldie Written in 2003
Professor Emeritus North Dakota State University
Since 1975 to present, the number of beef cow herds in the U.S. has decreased by approximately 50 percent. Northern Plains Farm Business Management Summaries suggest that the long-run profit margin of beef cows is going down with each consecutive cattle cycle. Decreasing profit margins puts considerable pressure on ranchers' management information systems.
Running beef cows with a 1st generation management system (collecting no formal management data) seemed to work in the 1970s. Managing with formal herd performance records -- a 2nd generation management system - kind of worked in the 1980s; however, managing by production alone let many beef cow producers down in the 1980s. After the financial crisis of the 1980s, it was evident that something more was needed to profitably manage a beef cow herd.
The financial crisis of the 1980s taught us that ranch managers needed to integrate economics profits and financial cash flow analyses into their herd performance, range and health management programs. As a result, the National Cattlemen's Association (Then NCA) set up a Rancher and USDA Cooperative Extension Committee to coordinate the development of a 3rd generation management system designed to ensure ranchers' financial survival in the 1990s.
A 3rd generation IRM and Standardized Performance Analysis (SPA) Management Information System was conceived, designed, tested and implemented by this Committee during the early 1990s. This 3rd generation management information system was, in deed, in place for the downturn of the 1990s.
This IRM Committee suggests that this integrated management system is the minimum management system needed to managing a beef cow herd in the years ahead. My presentation will discuss the four Key management advancements integrated into this 3rd generation management information system.Four Key Components Of This IRM-SPA 3rd Generation Management System
Four key management advancements were integrated in this IRM-SPA 3rd generation integrated management system. First, management signals have to be integrated. Their can not be a set of production signals that are different from the set of economic signals. The economics of production and the production of the economics have to be integrated.
Second, ranchers need to be alerted to fact that the traditional focus on weaning weights is no longer adequate. A far better measure of animal production performance is pounds of calf weaned per female exposed (lbs weaned/female exposed). This measure integrates weaning weights and percent calf crop. Increases in lbs weaned/female exposed can be brought about through better herd performance practices, better range management practices, and better health management practices -- all integrated.
The third key management advancement is having ranchers calculate their herd's unit cost of producing a hundredweight of calf (UCOP). UCOP is calculated by dividing the herd's total costs of production by the total pounds of calf produced adjusted to include the non-calf income. UCOP integrates herd performance, range management, financial management, and animal health into one management indicator. Then, anything that a rancher wants to talk about impacts eighter the numerator or denominator or both. Research has now confirmed that UCOP is the single most important management factor determining profits in the beef cow herd.
The fourth management advancement is giving ranchers the ability to benchmark their herd's production, economic, and financial factors against a set of benchmark herds. By using the SPA Guidelines, standardized formulas can be used; thus, a participating rancher can benchmark his herd's production, economic, and financial performance against the average of the benchmark herds. Benchmarking turns out to be the single most powerful management tool available to today's ranchers and beef farmers bar none.Recommendation
A third generation management information system is needed to create and maintain a successful ranch business in the years ahead.
posted by Dr. Harlan Hughes 1:08 PM
The economic situation for cattle feeders has improved somewhat in recent months but, on average, they are still running in the red. Figure 1 shows the Livestock Marketing Information Center's estimates of average Southern Plains feedlot breakevens as well as cash cattle prices. The recent recovery of cash cattle prices has helped the situation but higher breakevens driven by high-cost feeders still resulted in losses of about $5/cwt live last month.
Since the beginning of 2004, LMIC estimates that cattle feeders have made money in only 6 of 22 months. That, of course, followed 2003 which will likely forever be the cattle feeding sector's Field of Dreams ("Is this heaven?) moment. Lower breakeven costs this year (see Figure 2 for data on Kansas feedlot closeouts from Kansas State University) are reducing the red ink but not eliminating it. These kind of losses strike some people (especially those from a non-cattle background) as unnecessary and foolish. Besides, cattle feeders are the ones who chase feeder cattle so hard that they bid away virtually any chance of profits to start with, right? Well, maybe.
The interesting thing about this go-round of upside down cattle is that a much higher proportion of the cattle in feedlots are actually owned by the feedlots. What incentive is there to retain ownership on a calf or yearling that will bring more than a calf or yearling has ever brought? In the same vane, how risky is having $700--$900 (or even more) in a calf or yearling when it walks off the truck? The answer are "Not much" and "Very."
If no-one is interested in placing the cattle, feedlot operators have a a two-member choice set: own them or have an empty lot. In that light, the behavior of the past two years makes more sense. If variable costs can be covered, then feeders should indeed own the cattle and cover as much of their fixed costs as possible.
Could they get in the black anytime soon? Perhaps. The avail-ability of Canadian feeder cattle will help blunt the effect of higher heifer retention and beef exports to Japan, while still not a done deal, will resume someday - soon? Feed costs are about as low as they will get so much will depend on weather and performance this winter. And remember that these computations are meant to represent the average. There are some above-average feedlots that are not losing money today and they will do well when things go right-side-up again.
posted by Dr. Harlan Hughes 9:09 PM