Beef Buzz News
Dr. Glenn Tonsor Projects a $300 Swing from Losses to Gains for Remainder of 2022 for FeedlotsWed, 13 Jul 2022 11:12:09 CDT
Senior Farm and Ranch Broadcaster, Ron Hays, features comments from Kansas State University extension livestock market economist, Glynn Tonsor about the cattle closeouts for the rest of this year.
Dr. Tonsor has figured out the projected break-evens for the remainder of 2022 for feedlots. The numbers, he said, are all about an unhedged situation.
"My latest numbers are as of July 8, so the losses are greatest here in the month of July, but my latest estimate is a loss of 150 dollars per steer which stands out quite strongly," Tonsor said. "That reflects the fact that fed cattle prices have declined, and yet we have high cost of gain. $123 (per cwt) is the feeding cost of gain behind that number."
Looking forward through Labor Day, Tonsor said he projects losses for steers that will be leaving feed yards between now and then. In the month of October, the story changes, he added, and a positive return of $25 is projected and continues to increase until December.
"December is $145, so the story changes notably by the time we get to Christmas as animals are leaving the yard," Tonsor said. "What is underneath that is a notable expected increase in cattle prices."
The animals that are leaving the yard in July, Tonsor said, are projected to sell for $134 cwt.
"When we go all the way to December, I am projecting those steers that leave to be at $151 cwt," Tonsor said. "A 17 to 18 dollar increase in sales price while the cost of gain is also improving from a feedlots perspective, so the cost of gain is coming down."
Tonsor's projections talk about a 300-dollar swing going from a loss of 150 to almost a gain of 150. The next couple of months look rough, he added, but they have looked rough for a while.
"The month of July has got quite a bit worse over the last couple of months in these projections," Tonsor said. "But as 2022 progresses and if beef demand holds up, it looks like cattle leaving the feed yard are going to have positive returns with them."
Dr. Tonsor says it is important to realize that the numbers he is talking about from the losses to the profits from now to December are all about unhedged numbers, so no price risk protection.
"All of these numbers are presuming somebody is not hedged," Tonsor said. "So, you are getting cash price for fed cattle when they leave the yard, you are paying the cash price for feeders when they should go up, and you are buying corn as you need it."
Each of those actions, Tonsor said, opens the door to potential hedging opportunities, so if grain falls and you think it's a good deal, you have the opportunity to go lock in cheaper grain than you expected via futures hedging or forward contracts with the elevator.
"On the output side, which is usually where that discussion starts, is you could forward contract with the packers buying cattle," Tonsor said. "You could use CME products to hedge and so forth. You are left with basis risk, but it mitigates the majority of your net revenue risk when you do that, so there are those price management options- they are always there."
This series of projections, Tonsor said, assumes you are not using price management options.
"Because of that the variability, the projected losses, and the projected gains are going to be wider in this series I am putting out than anybody that is regularly hedging," Tonsor said. "Regularly hedging mitigates price variability, so your realized outcomes are narrower."
Those that are regularly hedging are probably not going to expect and experience the loss of $150 per animal here in July, Tonsor said, but that same operation doing the same thing is not going to expect and realize a gain of $150 in December either.
Click the LISTEN BAR below to hear more from Dr. Glenn Tonsor on his projected break-evens for the remainder of 2022 for feedlots.
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