Harrington's Sort & Cull

The Profit Drought Is Broken

John Harrington
By  John Harrington , DTN Livestock Analyst

According to the DTN cattle feeding model (i.e., based on 8-weight yearlings fed 120 days), this week's cash feedlot trade is cause for celebration, a wild party such as the beef production world hasn't seen since late 2014.

Assuming the 5-area steer average for the week turns out to be near $138, the average pen of fats should return a whopping profit of $8.69 per head. To innocent bystanders just looking for a good time, that may not sound like much. But to tortured veterans of the feed bunk, many of whom suffered relentless losses of $400-$500 per head through much of last year's final quarter, this modest resurgence of black ink seems like nothing short of an oil well gusher.

In fact, cattle feeding turned profitable this week for the first time in 14 months. Of course, your breakeven assumptions and calculations may vary from our country store arithmetic. But the ugly truth is that the only time producers even came close to cracking the nut last year was during a small window in early April.

Triple-digit losses dominated the feeding game throughout 2015 with the average fed animal losing $212, day in and day out. Unbelievably, this devastating turn was ruinous enough to essentially cancel the historic equity gain scored between late-summer 2013 and early winter 2014 when the average close-out reported a per-head profit of $170.

A gentle rain is never sweeter than when perceived as a major drought-breaker. With feedlot breakevens now scheduled to fall through midsummer (i.e., from the high $130s to the low $120s) and the best of seasonal fundamentals currently knocking on the doorstep, it looks like cattle feeding weather has finally, thankfully changed.

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



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