A common error made by many cattle feeders is the belief that they “must” own cattle at all times. NOT. It is prudent to step aside when the numbers call for it. If you can’t place an effective hedge going in, take a break from the game until you can. — jtl, 419
Regardless of your position or interest in the beef business, the current state of affairs surrounding the cattle markets has likely captivated much of your attention the past several months.
The market retreat has producers under pressure – especially margin operators who have gotten caught in the squeeze of the weekly or monthly requirement to buy and sell cattle. Clearly, from strictly a market perspective, 2015’s plummet caught many analysts off guard. It was nearly impossible to foresee this type of sharp correction coming.
With that in mind, this week’s illustration depicts the relative difference in annual inventory returns between the cow-calf and feedyard segments, respectively. The calculation reflects return per cow ($ per head) for the cow-calf segment, less return per feeding slot (double the annual $-per-head return reflecting roughly two turns of inventory per year).
The relationship was fairly steady and predictable through 2011. In general, the relative return difference hovered around $50 and slowly increased through 2011 toward $100. In other words, around 2010, the net return for a cow-calf operator, on average, was about $100 more than the average inventory return for a feedyard. And the industry operated in a fairly static mode around that general number.
That relationship changed dramatically in 2012 as feeder prices began to move sharply higher, with the difference reaching nearly $465 in 2014.
Given the historic losses in the feedyard sector in 2015, it’s likely that difference will grow even larger this year. That said, the push and pull around the feeder market could get especially rough in the coming year(s) to force that relationship back toward the historical trend.
How do you see this year’s market action and feedyard losses influencing the feeder market going forward? Will the beef industry witness a dramatic shift favoring the cattle feeder going forward? Where might this relationship end up in the years ahead? Leave your thoughts in the comments section below.
A Handbook for Ranch Managers. In keeping with the “holistic” idea that the land, the livestock, the people and the money should be viewed as a single integrated whole: Part I deals with the management of the natural resources. Part II covers livestock production and Part III deals with the people and the money. Not only would this book make an excellent basic text for a university program in Ranch Management, no professional ranch manager’s reference bookshelf should be without it. It is a comprehensive reference manual for managing the working ranch. The information in the appendices and extensive bibliography alone is worth the price of the book.
You might also be interested in the supplement to this Handbook: Planned Grazing: A Study Guide and Reference Manual.