Mackey: Packers See Shrinking Margins, Reduced Leverage
The packers made a tremendous amount of money over the last few years but now find themselves in similar position that the cattle feeder was in previously. They are wrestling with shrinking margins and reduced leverage.
Motivated by a lower corn board and stronger futures, cattle traders were unimpressed with the steady to stronger packer bids last week. Cattle feeders in Kansas and Texas sold for $155 per cwt., while feeders in Iowa in Nebraska saw sales at $157-159. The dressed trade moved higher primarily at $249. The regionals remained more aggressive on the front-end type cattle. The cattle feeders left intact stayed firm in their $160 and $250 asks. By week’s end the cattle feeder only moved 105,000 head. By Friday’s numbers, the packer purchased 24,000 fewer head than the previous week.
Packers will enter this week with less inventory and be forced to support the market once again. As the supply tightens and cattle feeders gain confidence, the packer’s only remedy to holding their leverage is to reduce the robust slaughter volumes the industry has witnessed. Last week’s harvest came in at 663,000 head, up 67,000 head from the shortened holiday week, but still down 19,000 head from last year.
Looking ahead, the packers will start by spreading their struggling financial position and reduced kills to keep sellers in check. In these times of short numbers, as should be expected, the cattle feeder should look to press this market higher into the end of the year.
A native of Torrington, WY, Brodie Mackey joined Consolidated Beef Producers in the spring of 2013 after earning his B.S. from the University of Nebraska-Lincoln. Brodie’s focus at CBP includes customer development, cattle marketing and evaluation in Nebraska, Northeast Colorado, South Dakota and Wyoming. For more about Consolidated Beef Producers visit here.
