Looking Ahead At Cattle Prices

US - Profitability has improved from the past two years in the cattle industry, but very profitable returns in the spring and early summer have turned to near breakeven in the past four months, said Shane Ellis, Iowa State University livestock marketing specialist.
calendar icon 30 November 2010
clock icon 2 minute read

Speaking at the recent Pro Ag Outlook meeting in Waterloo, Mr Ellis said most of the decline in profitability has been the result of rising feed costs and substantially higher feeder cattle prices over the summer months.

"Demand for feeder cattle in a short supply marketplace lead cattle buyers to bid away much of their potential profit margins," Mr Ellis said. "Then corn prices started to steadily increase through the late summer and fall. For the past four months, cattle returns have been near or slightly below breakeven. Current fed cattle prices and feed costs will keep cattle returns very near breakeven for the remainder of the year."

For the past year, ISU extension has been producing a weekly crush margin for cattle and hog finishing, Mr Ellis said. The crush margin for cattle currently on feed assumes that the corn price is pegged at the cash price the month the feeder animal was purchased and placed on feed. More information on cattle crush margins is available at www.econ.iastate.edu.

In the nearby, the margins are improving as the fed cattle futures have been improving, Mr Ellis said. Producers who are planning to market in the next five months, should watch the futures market closely. Futures prices for live cattle in the spring are well over $1 per pound.

"If the futures price is correct and cash price rises to those levels, the industry will be seeing some record high spring prices," Mr  Ellis said. "Producers should consider the questions 'what are the chances of the futures price improving' and 'what are the chances that the futures is over predicting the market?'

Hog prices were very weak in October, Mr Ellis said. Cash hog prices have since started to recover, but are still in the mid-$60s per hundredweight. The industry has a hog slaughter capacity threshold of about 2.2 million head of hogs per week. The number of hogs coming to market in October surpassed 2009 levels at well over 2.3 million head. This extra wave of hogs led packers to drop purchase prices.

The outlook for the next two quarters is one of steadily improving prices, Mr Ellis said. The price recovery will be steady until the middle of 2011, with hog prices in the middle or even upper $80 per hundredweight.

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