Good-bye high cost of gain

Where are feeder cattle prices headed? Does it pay to retain ownership? Two questions cattlemen would love to find answers to in that magical crystal ball.

A few months ago, it looked as if fed cattle prices would climb above breakeven for the spring. However, that was before the recent drop in fed cattle prices.

According to the Livestock Marketing Information Center (LMIC), fed cattle prices in Kansas dropped from $135.93 per cwt. for the week ending March 27 to $123.84 per cwt. for the week ending May 1. What does this mean for potential break even in the near term?

Consider monthly feeding cost of gain from January 2006 to February 2016 as shown in Figure 1. Feeding cost of gain averaged $85.16 per cwt. in 2015, a welcome departure from the high feeding cost of gains seen during most of the 2011 to 2014 period. Feeding cost of gain exceeded $90 per cwt. from April 2011 through Sept. 2014 and $100 per cwt. from August 2011 to December 2013. Given current corn and alfalfa price projections, feeding cost of gain is expected to range from $75 to $80 for the rest of 2016.

Losses in January 2016 and February 2016 were $362 and $198 per head, respectively. In March and April, losses per head are estimated to be $135 and $105. Breakeven prices for May and June are expected to range from $125 to $127 per cwt. and are below the current projected fed cattle prices from LMIC for the second quarter.

Third and fourth quarter breakeven prices for 2016 are expected to range from $123 to $127, and $122 to $125, respectively. Whether or not cattle finishers can earn a positive return depends on two factors: feeder prices and fed cattle prices. If cattle finishers are cautious when buying feeders during the next few months and current price projects are realized, cattle finishers will either be close to breakeven or earn small net returns.

Given current projections, it appears prices will be close to breakeven for May and June of this year.

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