The cattle market continued its slump this week. Live cattle futures ended the week approximately $5/cwt lower in the front month and $2-3/cwt lower in the deferred contracts. This activity, in addition to a strong grain market, pushed stocker and feeder prices lower for the week ending May 20, 2011.
The seasonal drop in feeder prices has caught many off guard, as the break started much earlier than most expected. Between April 1, 2011 and May 20, 2011, the feeder cattle futures board has traded higher 11 days. This is less than 33% of the time, certainly the market has not been able to mount any sustained rally since it made historic highs during the last week of March 2011.
Unfortunately the corn market has posted a rally during the same time period and the live cattle futures board has declined in value at a faster pace than the drop in feeder and stocker prices. The result is no change in the breakeven potential, on average cattle are being placed with an unprofitable outlook.
Weekly USDA feeder cattle prices for TX and OK were used to calculate projected breakevens on cattle bought last week, week ending May 20, 2011. Breakevens were calculated for each weight group within sex (steer and heifer). Ration price, $/ton dmb, was estimated at $320. 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.