Weekly Feeder Cattle Risk Management Analysis

January 25, 2011 04:21 AM
 

riskmgmt01252011 

Weekly USDA feeder cattle prices for TX and OK were used to calculate projected breakevens on cattle bought last week-week ending January 21, 2011. Breakevens were calculated for each weight group by sex (steer and heifer). Ration price at $/ton dry matter basis 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 was to illustrate pricing differentials between weight classes and sexes of cattle. 

While the live cattle futures contract has increased $4.35/cwt (4%) through the first three weeks of January ($108.30/cwt on 1-7-2011 to $112.625/cwt on 1-21-2011), the input costs for replacing a pen of cattle has increased substantially. For example, the January feeder contract has increased $4.77/cwt (3.9%) and the corn market posted even stronger gains of $62.25.bu (10.5%).  From this it is clear that input costs are outpacing the price received for the final product. 

At these current prices, cattle feeders are beginning to show less appetite for purchasing feeder cattle at their current prices and the deteriorating profit potential so far in 2011. As such, a correction in the feeder market could be expected as the market influences for grain price reach well beyond feed needed for cattle.

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