The end is nigh, after three years, for the feedlot downturn
which is expected to prove evident again in data on Friday, showing a decline
in cattle placements, as operators attempt to stem their losses.
The US Department of Agriculture, which last month warned
that no end was in sight for an unbroken run of feedlot losses already two
years old, said that profitability might return after all, thanks to the fall in
Lighter cattle with potential for "marketing as fed cattle
extending well into the 2013-14 corn marketing year", which begins in
September, "will likely have the first real potential to generate cattle feeding
profits since early 2011".
"Corn prices are anticipated to be significantly lower," cutting
feed bills, with the USDA currently forecasting an average farmgate price of $4.80
a bushel in 2013-14, down some 30% year on year.
Rainfall holds the
However, the return by feedlots to profit, from losses
Rabobank on Thursday estimated at a "heavy" $100-200 per head, will depend on
drought continuing to wane in US cattle regions, so encouraging breeders to
hang on to cattle.
USDA analyst Rachel Johnson said: "Continued drought could
again force feeder cattle into feedlots prematurely," with ranchers selling
stock early to avoid the cost of artificial feeding to replace pasture.
"Increased supplies would likely exert downward pressure on
fed cattle prices."
This factor, "along with increased feeding costs from longer
feeding periods required by lighter weight placements, would likely reduce
cattle-feeding profit potential", Ms Johnson said.
"Near-term precipitation holds all the cards."
The comments come as investors are preparing for monthly
USDA data expected to show feedlots, again, reducing the number of cattle they
Placements are seen falling 0.9% year to year, to some 1.78m
head, with the decline expected to have been larger were it not for some
overspill of animals down to arrive in February, but which were held up by
February placements slumped 13.5% year on year to 1.48m
The forecast of a relatively low rate of decline in March
placements also reflects the fact that "they are compared with the low March
2012 placement, which was 6.4% less than 2011", broker Allendale said, also
highlighting that "feedlot margins remain negative".
Rabobank also held out better prospects for feedlots, and
beef packers, following a January-to-March quarter which had been a "big
disappointment" for the sector, marked by beef demand "running well below
anticipated levels" on both US and export markets.
"There is still a view of optimism for the April-to-June
quarter," the bank said, flagging the prospect of tighter supplies of fattened
cattle thanks to weaker placements on feedlots in the second half of 2012.
"Fed cattle prices are still expected to trade in a much
more typical seasonal pattern, with tight fed cattle supplies and demand from the
spring grilling season pushing prices to the $130-135 [per hundredweight] level
for a spring peak."