This past week brought back memories of 2015 to 2016 when record-high feeder cattle prices led to significant red ink in feedlots — unhedged.
High Feeder Costs Squeeze Feedlot Margins
Using a March 6 feedlot placement week, the first cost of cattle into the feedlot for the 775 lb. feeder steer that was finished and slaughtered last week was $372.44/cwt. That steer was on feed for 212 days and fed to a record-heavy finished weight with a total cost-of-gain of $714. The nearby corn futures close last week was $4.11/bu. and the prime interest rate was 6.75% when those cattle were placed on feed.
With current steer carcass weights running at or near 980 lb., the liveweight of 1,550 lb. leads to a breakeven price of $244/cwt. resulting in feeding margins of -$340 against the 5-Area Direct-Negotiated steer price of $219.80/cwt.
Stepping Back to the 2015 Correction
A look back to 2015: For the week ending Oct. 2, Sterling’s calculation shows a feeding loss of -$490 for cattle hitting the show list that week against a 5-Area Direct Negotiated Steer price of $165.77/cwt.
The cost of feeders going into the feedlot in March of that year when those cattle were placed was $214.63/cwt. with a total cost-of-gain at $476. The nearby corn futures close for that week was $3.91/bu. and the prime interest rate was 3.25%. The estimated breakeven for those cattle was calculated against a sharply lower finished weight compared to this year as the carcass weight for steers that week averaged 924 lb. suggesting a live slaughter weight of around 1,450 lb. and 100 lb. less than the current slaughter weights.
Key Differences Between 2015 and Today
We know the ultimate impact of record-high feeder cattle prices leading to significant losses in the feedlot resulting from high break-even prices during 2015. There was a sharp adjustment to both the feeder cattle and slaughter cattle market. We have seen somewhat the same result in 2026, but certainly not to the same extent as in 2015.
The question becomes whether the current market adjustment will continue down the same path as in 2015. There are two parts to the answer:
- The pace of herd building and additional cattle numbers; and
- Beef demand.
Regarding No. 1, increased cattle numbers are not on the horizon as herd building is slow at best. No. 2 demand is much stronger than in 2015 and indications are it will remain solid. Therefore, while high feedlot break-evens are significant, slow herd building and strong demand are likely to play the dominant role in the market outlook.
One other important aspect to feeder cattle prices moving forward is feedlot capacity. With the likelihood of slow herd building, there will be an adjustment. From the packer perspective, capacity today is about equal to what I have estimated for 2015 and utilization of that capacity at 80% is about the same as it was in 2015.
