Feedyard vs. cow-calf inventory returns: Who fared best in 2015?

A Handbook for Ranch ManagersA 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

by Nevil Speer Via Beef

 Planned Grazing: A Study Guide and Reference Manual  Margin operators like cattle feeders struggled mightily in 2015.

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.

Environmental & Natural Resource Economics: The Austrian ViewThe 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.

Reconnaissance Marine MCI 03.32f: Marine Corps Institute The Betrayed: On Warriors, Cowboys and Other Misfits Combat Shooter's Handbook  However, what’s most important is the outcome of this year’s market action on the business in general.  That’s especially true considering the long-run relationship among segments over time.

The Essence of Liberty: Volume I: Liberty and History: The Rise and Fall of the Noble Experiment with Constitutionally Limited Government (Liberty and ... Limited Government) (Volume 1)  The Essence of Liberty: Volume II: The Economics of Liberty (Volume 2) The Essence of Liberty: Volume III: A Universal Philosophy of Political Economy (Liberty: A Universal Political Ethic) (Volume 3)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.

feedyard versus cow-calf inventory returnsThat 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 ManagersA 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.

About Land & Livestock Interntional, Inc.

Land and Livestock International, Inc. is a leading agribusiness management firm providing a complete line of services to the range livestock industry. We believe that private property is the foundation of America. Private property and free markets go hand in hand—without property there is no freedom. We also believe that free markets, not government intervention, hold the key to natural resource conservation and environmental preservation. No government bureaucrat can (or will) understand and treat the land with as much respect as its owner. The bureaucrat simply does not have the same motives as does the owner of a capital interest in the property. Our specialty is the working livestock ranch simply because there are so many very good reasons for owning such a property. We provide educational, management and consulting services with a focus on ecologically and financially sustainable land management that will enhance natural processes (water and mineral cycles, energy flow and community dynamics) while enhancing profits and steadily building wealth.
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