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Watch Out For Fourth Quarter Feedlot Profits

29 September 2014

Uni Kansas State

Calculations show a record run in feedlot returns which are tipped to stay over $100 per head to close the summer.

But Glynn Tonsor, agricultural economics professor at Kansas State University, advises that, while this run of very strong returns so far in 2014 is certainly welcomed by feedlot operators, current projections should be noted and some context on the economics of recent returns should be recognized.

Watch for 'much lower' and even negative returns, advises Professor Tonsor

First, animals scheduled to be sold in the fourth quarter are expected to carry much lower and actually very negative returns, writes Professor Tonsor.

This sharp reversal reflects the notable increase in feeder cattle prices and the corresponding lack of further increases in expected fed cattle prices.

It is also important to note the lower economic value reflected by recent record setting $/hd returns.

For instance, the July closeout net return of $310/steer is estimated to have been realized by incurring $1,881/hd in total costs.

This compares to the previous record of $308/steer set in October of 2003 with total costs of $957/hd. While the recent return levels are historic on a $/hd basis, the return on investment is far from record setting.

The main implication of this is that feedlot operators, lenders, and analysts would be well-served to note this, pay attention to corresponding implications of elevated capital requirements, and ultimately reflect on these factors in making purchasing/selling and related risk management decisions.

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