Impact of Feeder Cattle On Profit Margins

Feedlot margins during April were significantly into the black and, based on the Sterling Marketing model, averaged about $400 per head compared to just under $30 per head a year earlier. While I recognize that change in margins certainly does not reflect every feedlot closeout in the country, the greater takeaway from the comparison is the stark contrast between feedlot margins this year and the past year.

This analysis also illustrates the impact of feeder cattle prices on the feeding margin. While Choice steer prices were about the same as a year ago for April, averaging about $129 per cwt this year and $129.67 per cwt a year ago, feeder cattle prices in the comparison were sharply lower.

For cattle marketed in April 2017, the cost of the feeder cattle was $130.17 per cwt compared to $177.49 per cwt for cattle marketed in April 2016. That $47 per cwt difference means an estimated break-even price this year of $98.81 versus the past year’s estimated closeout breakeven of $127.88 per cwt. at $29 di erence in breakeven is all the difference between making and losing money. More importantly, it can be the di erence between achieving a sound economic balance or teetering on the brink of an economic wreck.

Higher than expected feeder cattle prices during April are now expected to extend into May and June and have pushed feedlot breakevens to more than $100 per cwt. While I’m not necessarily uncomfortable with the higher feeder cattle prices, as feeder cattle numbers are still the limiting factor on the upside, I still watch any upward movement closely. You should, too, when it comes to your marketing decisions and for the overall long-term health of the industry.

Editor's Note: This article originally appeared in the May 2017 issue of Drovers.