Live cattle prices and input costs continue to weaken the feeder cattle market. Last week cattle sold $2.00/cwt lower than the previous week. Following all-time contract highs seen the first week of April, cattle prices have declined rapidly.
As of Thursday, April 21, 2011 the April contract was $5.625 lower than the closing high seen on April 1, 2011. For the same time period, the feeder cattle futures contract was $4.25 lower. Additionally, corn posted a $0.35/bu rally. Taken together, these factors have not improved or necessarily hurt the margin potential of cattle placed throughout the month. Across all weights of steer and heifers, losses associated with cattle only remain at $7.36- and $5.81/cwt; respectively.
The outlook for the cattle market appears to be weakening in the near term. Thursday, April 21, 2011 the USDA released its estimates of red meat in cold storage. Total red meat supplies were 13% higher than the same time period in 2010. The monthly cattle of feed report, released the same day, reported that cattle on feed were 5% higher, placements 3% higher and marketings 4% above year ago levels. As cash price softens along with some bearish fundamental news in the market, prices may not be able to sustain levels seen over the last two months. In addition, live cattle prices usually see a seasonal decline as we enter late spring and early summer whereas feeder cattle prices remain relatively stable throughout the summer. However, this year may represent an anomaly in seasonals as grain prices continue to surge, this may pressure feeder cattle prices. Especially in the case that live cattle remain under pressure.
Weekly USDA feeder cattle prices for TX and OK were used to calculate projected breakevens on cattle bought last week, week ending April 21, 2011. Breakevens were calculated for each weight group within sex (steer and heifer). Ration price, $/ton dmb, was estimated at $340. Other variables including interest, yardage and % feed financed were estimated to be 6%, $0.05/d and 100%; respectively. As it is known that actual input estimates will vary greatly by region and by yard within region, our goal is to illustrate pricing differentials between weight classes and sexes of cattle.