Sort & Cull

If you had plenty of crowbars and told the trucker to stay on back roads, you might be able to squeeze 30 head of over-finished steers into a single pot this week, sadly kicking them toward the nearest packing plant and a breathtakingly miserable payday.

Assuming the 5-area steer price averaged close to $135 (i.e., $4.18 below last week, $15.62 poorer than mid August, $32.57 short of the early spring high, and $21.74 less than 2014), the DTN feeding model estimates that unhedged cattle just marketed lost more than $325 per head. Our model is based on 8-weight steers on feed for approximately 120 days.

What a difference a year makes. In the early fall of 2014, feedlot managers were cheerfully banking profits of $160 per head. Clearly, packer bids $20 stronger went a long way in throwing the party. But the other big key involved the more manageable cost of feeder cattle.

The finished yearlings sold for slaughter in September 2014 had originally been unloaded the previous May costing no more than $195.10, $25.10 per cwt less than the comparable invoice paid in the spring of 2015. The difference in feed costs between the two periods was quite negligible.

In the early summer of 2012, cattle feeders struggled through an ugly bloodbath with some losses exceeding $250 per head. Prior to the market disaster still unfolding, this represented the most brutal equity loss seen since 1996 (that's as far back as our current model tracks).

Of course, these kinds of bruised apples and oranges are difficult to compare. Total loss and percent of initial investment could be a more meaningful measurement over time. For example, per-head losses suffered in the mid 1970s were technically smaller than we are now seeing. Yet that era's gut-ripping equity loss may have been more severe in real terms.

Sorry for the insensitive hair-splitting. Suffice it to say these have become horrific days in the cattle feeding world, an ugly period that may be destined to get worse before it gets better.

For more of John's commentary, visit http://feelofthemarket.com/…

(AG)

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