Sep 29, 2009

Marketing options

Marketing options

The big summer video sales are just about over and the yearling cattle fared pretty well up until the last few weeks. There were some good calf sales, but for most cow/calf operators, it was disappointing in relation to last year’s prices. Now we’re headed into the normal fall runs and the market has declined. Hopefully, it won’t be a repeat of last year when the calf market fell apart in November and December which created a buying opportunity for outfits with good winter forage available.

Nine-and-a-half billion dollars is about how much cattle feeders have lost in the past five years. That is a remarkable sum of money taken out of the beef industry. It also makes it very difficult for feedlots to buy many replacement feeders or calves. It has been amazing that some feedlots continue to buy feeder cattle today, knowing that they may only just break even. Ten years ago, it would have been difficult for most feeders to accept such a scenario. Most wouldn’t have even considered buying a calf if they knew they were only going to break even.

Positive margins on cattle feeding have been a long time coming, but it looks like they have a decent chance of returning to profitability next year. It’s amazing that the industry has endured five years of continued feeding losses. That’s not to say that everyone feeding cattle has lost money on every pen of cattle. Those who have had a rigorous hedging program have more than likely fared reasonably well.

A year ago, it looked as if we were going to see some of the best times ever in the cattle business with live cattle futures trading well over a dollar. Then the recession hit and unemployment went through the roof. The rest of the world experienced the same economic situation and meat exports hit the skids. It seemed that no one would ever buy a nice steak again.

Banks are starting to have problems making cattle-feeding loans because of the lost equity many feed yards have experienced; many have simply shut their gates. In the last Cattle on Feed Report, New Mexico didn’t report because three feedlots shut down and confidentiality issues regarding reporting would have told everyone how many cattle the other two feedlots had in their inventory.

The calf market has been lower than many had hoped this year, leaving many in the cow/calf business with little to no profit. For those who haven’t been able to sell their calves yet, it would be a good time to figure out some options because calves may not gain a lot of value over the next few months. Over the past two years, the market has told us that if you can carry calves over to yearlings and put some weight on them, they will be worth more.

One thing that should help cow/calf operators buy a little time is that forage is much cheaper than it was a year ago and yearling prices for next spring are a little better than they are today. That is, if you’re inclined to use the futures to cover your bets on holding over your calves.

With the price of feeder cattle trending down over the past few weeks, we may see ourselves in a situation where we are selling at a loss because feedlots don’t have the equity to buy as many feeder cattle. It really is that simple. Some cattlemen may even be forced to consider retained ownership into the feedlot.

If you look at the corn futures, we are at or near the low for the foreseeable future. However, at many feedlots in the Corn Belt, there are some pretty good deals on cash corn and high moisture silage that should get some feeding costs down to the 70-cent zone. It would sure be worth calling a few cattle feeders to find out what it would cost to feed calves. Lock in your feed costs with the feedlot and stay away from the board.

Looking at the number of cattle that have been on feed more than 120 days, according to, suggests that we may have plenty of fed cattle to sell during October, but that should start to ease up in November. The most disturbing part of the Cattle on Feed Report was the fact that August marketings were at their lowest level in the past 15 years. It looks like it’s time for everyone to eat more beef. — PETE CROW