June 28, 2012 Packers Margins are in the Black; Feedlots in the Red
Rita Jane Babbett reports that there are plenty of short-term implications for cattle ranchers and corn farmers as dry heat continues to scorch much of the United States, but the impact on beef processors will be longer term, according to analysts contacted by Meatingplace.
Cattle are not as physically stressed by heat as hogs are, but the real problem for cattle is the continued devastation to their pastures, said University of Missouri Agricultural Economics Professor Ron Plain. “Grass doesn’t grow and calves are moved to feedlots sooner than planned,” he explained.
At the same time, concern about heat stress on the U.S. corn crop is boosting the cost of raising cattle once they arrive at the feedlot. Corn futures prices hit a nine-month high on Wednesday, topping $6.50 for July delivery and $6.34 for December delivery on the Chicago Board of Trade.
All this is bad news for cattle ranchers and feedlot owners, according to Jim Robb, director of the Livestock Marketing Information Center, but the effect on beef packers is more long-term.
“It doesn’t affect beef packers, except in the long term, because this is going to slow down prospects this year,” said Robb. He explained that there had been a slight probability of a small increase in beef supply before this hot weather hit. “This takes that away. Packers are going to see a year or two longer than they anticipated in the decline of herd and suppliers.”
Robb also noted this continued short cattle supply would continue the beef processing industry dilemma of excess capacity and could subject packers to squeezed margins like earlier this year. “In this type of supply situation your margins are squeezed very quickly,” said Robb. As recently as April, beef packers were losing over $100 per head when demand for lean finely textured beef declined rapidly.
Currently, however, beef packer margins are in the black. Beef packers margins hit $61.33 per head in the week ended June 23, according to the Sterling Beef Profit Tracker, compiled by John Nalivka and published by Drovers CattleNetwork. That same week, feedlot margins averaged a loss of $140.46 per head.