Tonsor Offers Feedlot Cattle Profitability Forecast, Analyzes Cattle On Feed Report

Feeders will continue to see losses for the next several months. That’s according to Kansas State University Livestock Market Economist Glynn Tonsor. He periodically figures the expected outcome of feeding cattle in the Southern Plains, especially in Kansas. As of September 10th, Tonsor said the projected close-outs or net returns through May of 2016 were $100 to up to $300 losses. The worst month is projected to be November with losses of $292. Since September 10th, the cattle markets have fell at least $5/cwt in most of those months. That’s roughly $60 to $70 per head. 

 

 

“All of those negative numbers that range from $100 to almost $300, to be fair here, you would have to add another $60 to $70 losses to them at that point in time of projections,” Tonsor said. 

 

All of these projections are all based on a cash strategy.   Tonsor said it assumes no hedging at the time of placement and feed prices are based on current local prices for corn. While that may not match anyone's marketing strategy, he said it does pick up the profitability trends of the industry. Tonsor said projections for the second half of 2015 into 2016 have been projected to have bad close out returns and they continue to get worse.

 

In evaluating the latest Cattle on Feed report that was released Friday by the U.S. Department of Agriculture, Tonsor said there is a glimmer of hope ahead.

 

“On the August placement numbers, this report said down five percent versus pre-report estimates of basically flat,” Tonsor said. “That I would say is bullish in the sense that fewer animals were placed into August, therefor as we look into six months from now, that would project fewer animals coming out of the yards. So, this would be particularly bullish for deferred live cattle prices.”

 

Overall, the U.S. had fewer than expected placements. Kansas had the largest drop with placements down ten percent over a year ago. Tonsor said that is consistent with stories about the number of heavy cattle starting to stack up in the feedyards, occupying bunk space, thus there were fewer placements in August. If prices go higher, he said those feedlots that have been holding out will be rewarded and this could also open up more bunk space.

 

August marketings were down six percent. Tonsor said that was in line with pre-report estimates down 6.2 percent, which was neutral to slightly bullish. With concerns over lower beef demand, he said the mere fact that August marketings were consistent with expectations should confirm that product is still moving.