Opportunities for Stockers, Feeders Under Pressure

US - The stocker and feedlot sectors provide a dramatic contrast in the economics of two beef industry sectors. While the stocker sector sees opportunities with strong values for forage-based gains, the feedlot sector is under increasing pressure as limited feeder cattle supplies, high feed prices and excess capacity combine to result in severe feedlot losses.
calendar icon 20 June 2012
clock icon 2 minute read

Cattle feeders are in a fight to the death to see who survives the next couple of years, writes Dr Derrell Peel from Oklahoma State University Extension.

Stocker production and cattle feeding are margin operations where the principal determinant of economic potential is the gross margin between the value of purchased cattle versus the value of cattle sold. Within that gross margin, all other production costs have to be paid including feed, veterinary and medicine cost, death loss, labour and interest. The gross margin can be calculated as a value of gain for both stockers and feedlots. The value of gain is a useful way to compare various stocker and feedlot systems using different beginning and ending weights.

Despite high stocker cattle prices, the value of gain suggests considerable opportunity for stocker production. At current prices, the value of gain for added weight on feeder cattle is $1.10-$1.15/pound for a wide range of beginning weights and amounts of gain. Current Feeder futures levels allow a producer to lock in a value of gain at about this level. Cost of gain varies considerably for stocker programs but is generally well below the current value of gain, especially using summer grazing.

In contrast, feedlot margins are quite dismal. Feedlot value of gain at the current time is in the range of $0.70-$0.85/pound. With a cost of gain well over $1.00/pound for most feedlots, not to mention other production costs, the losses are severe. Breakeven selling prices for feedlots are in the range of $130-$140/cwt in the coming months. It will be at least another month or two before feedlot inventories decrease enough to support significantly higher feedlot prices and even then pushing fed prices up enough to cover breakevens will require higher wholesale and retail beef prices.

In a world of high feed and feeder cattle prices and declining feeder availability, the squeeze on feedlots is likely to persist for many months. A record corn crop this year may ease the losses a bit, but is not likely to change the overall situation.

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