Since late summer, cattle feeders have been trapped in a financial bloodbath of historical proportion. Between Labor Day and the end of November, the average per head loss on steers and heifers totaled $407. Assuming fed marketings over the 3-month period amounted to roughly 5.76 million head, feedlot equity this fall has imploded by no less than $2.35 BILLION (on a cash-to-cash basis).
Given the fact that the devastated cash market is still limping lower, the entire year of 2015 stands to go down as the mostly crushing economic experience U.S. cattle feeders have ever suffered. No small claim, to be sure.
For those brave producers still upright after this seismic shellshock, the task of restocking with cheaper replacements and radically lower breakevens is absolutely essential, the outcome of which for many could dictate whether or not they remain in the feeding game.
Such a bleak necessity explains why feeder futures in the last third of the year have plummeted more than twice as fast as their live counterparts. For example, since peaking on August 10, January feeders has lost more than $41; at the same time, June live has been trimmed just $19 and change. At the same time, the cash feeder index has fallen by just under $45. The desperate determination behind feeder selling is only underscored by the fact corn futures have lost 30-35 cents through this period.
While this remedial action by feedlot managers may look radical on paper, the question remains whether it's enough to start righting ships in troubled water. I think 8-weight steers delivered to the bunk this week will require a late March/early April fed market around $132 just to breakeven, nearly $30 below the spot threshold and $35 less than what it took to crack the nut in the early spring of 2015.
That might sound promising enough until you note current April live futures imply a cash trading no more than $128-130. Granted, prospects of such a small feeding loss may be seem like cause for celebration compared with the market nightmare at hand. But does it represent a formula for cattle feeding recovery?
In a short, sobering word, no. Barring a sudden and significant recovery in wholesale beef prices, the feeder market could remain locked in the woodshed far into 2016.
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