March 18, 2013
USDA warns of continual feedlot losses
Feedlot losses, which have lasted for two years, are expected to continue, despite the prospect of lower feed prices, according to US farm officials who cautioned over the possibility of further price declinations for fed cattle.
The USDA warned that prices of fattened cattle, already down some 7% this year as measured by Chicago''s benchmark April live cattle contract, could drop further, given a back-up of animals close to being ready for market.
The number of cattle on feed for more than 120 days is at the second-highest on records going back 17 years, despite a downturn in placements last autumn, due to higher feed prices.
"This suggests that there are still cattle that should come to market in sufficient numbers to exert downward pressure on fed cattle prices, and likely on wholesale [beef] cutout values as well," USDA analyst Rachel Johnson said.
Even the prospect of lower grain prices ahead, as better conditions foster a pick-up in US crop production, will not allow feedlotsto break losses stretching back to March 2011.
While lower grain costs might lower their part of the cattle production bill - which the USDA pegged in the "mid-US$130" per hundredweight range, ahead of the US$127 per hundredweight for selling cattle in Texas last week, feedlots will face higher prices of animals for fattening.
"Feeder cattle prices are expected to rise, and will largely offset expected lower 2013-14 corn prices," Ms Johnson said.
The rise in feeder cattle prices "could lead to continued cattle feeding losses into 2013".
The USDA forecasts corn prices tumbling to average US$4.80 a bushel over 2013-14, from US$6.75 - US$7.65 a bushel this season, due to a harvest reaching record this year as the US drought eases.
However, this is likely to prompt a boost to feeder cattle prices, in encouraging demand not just from beef producers, with reduced feed bills, but from ranchers seeking to rebuild herds, which were reduced during the drought in some southern areas.
Currently, feeder cattle prices are also on the decline, falling 13% so far this year, as measured by Chicago''s benchmark April futures contract, reflecting drought conditions which Ms Johnson highlighted have "not completely alleviated" over Plains states such as Kansas and Texas.
"Declining prices for heavy feeder cattle may reflect the dim prospects for near-term cattle feeding profits," Ms Johnson said.
This year''s decline in cattle prices has also been attributed to cutbacks in slaughter rates as government cutbacks came into effect. The USDA proposes that its meat inspectors will take 11 days of unpaid leave between July and September in an effort to balance accounts.
The price drop continued despite the USDA revealing bumper beef export sales of up to 16,700 tonnes to Japan last week.
"I have never seen weekly shipments that big," Jerry Stowell at Country Futures said.
The figure appears to be the biggest for at least a decade.
"Packer margins are the best we''ve seen for months as well," he added, reaching a positive US$10.50 a head, up from US$3.85 a head a week ago, Hedgersedge said last week.
"However, right now, futures are more concerned about things like meat inspection and domestic demand, it appears," Mr Stowell added.