Beef Buzz News
Feedyard Profitability Remains Elusive Into 2013, K-State Economist Says
Mon, 15 Oct 2012 10:56:15 CDT
Without a doubt, 2012 has been a lousy year for making money on feeding cattle. High feed costs are the main reason.
Dr. Glynn Tonsor examines feedlot profitibility into 2013.
In his latest cattle profit forecast, Kansas State University livestock economist Dr. Glynn Tonsor says he believes there are better times ahead, but the profitability of finishing cattle is well out into the future.
"We have, historically, bad current close-outs. We estimate that the August close-outs, so we now know performance and market information then, were negative $253 for the representative steer. There's only four months since, I think it was, June of '93, when you start comparing, that were worse, one of which was the previous month. So, we kind of have these building negatives. And we have continuing negative forecasts for the next three months."
He says that the story does become better in that the negatives over the next few months appear to be less extreme and that current placements targeted for close out early next year are expected to yield a small positive return.
High feed costs are expected to keep the cost of gains high well into next year, Tonsor says. He says the break even cost is about $1.18 and the cost of gain is about the same. He says the February cost is projected to be in the $1.20 range, with some of that offset by expected higher cattle prices.
"So, the broader context of the feedyards adjusting to the new cost situation-paying less for feeder cattle and so forth-that doesn't change overnight, and that's how we got these large negative numbers because higher purchase prices were built into that. Going forward, there's some rational expectations that are at work that will get us closer to these zero returns."
Tonsor says feedlot losses are likely to continue well into next year, but not at the magnitude seen this year. He says with tightening cattle supplies, feedyards are going to be in a pinch to find cattle and, consequently, will be bidding prices up more as 2013 wears on.
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