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Feedlots may return to profit - after three years

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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 feed prices.

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 key

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."

'Negative margins'

The comments come as investors are preparing for monthly USDA data expected to show feedlots, again, reducing the number of cattle they take.

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 winter storms.

February placements slumped 13.5% year on year to 1.48m head.

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".

'Big disappointment'

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."

By Agrimoney.com

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