Feedlot returns of $200-300 not enough to cover costs but expected to improve in fourth quarter.

Krissa Welshans, Livestock Editor

August 10, 2020

2 Min Read
Cattle in feedlot

July cattle feeding returns posted the bleakest month yet in 2020, with estimated losses at about $200/head, according to the Livestock Marketing Information Center (LMIC). It was also the fifth consecutive month of red ink, the group noted.

LMIC has been estimating monthly cattle feeding returns since the mid-1970s. Calculations assume feeding-out a 750-pound steer in a commercial Southern Plains feedlot and include all costs of production. Estimates are not survey-based and presume normal weather conditions. Cash prices with no hedges are used and the calculation assume a normal marketing window, based on a standard cost of gain.

But, LMIC said this year has not been normal, adding that animals have been on feed a good deal longer.

“Still, if we think back to feeder cattle prices 6-8 months ago, prices were high.”

LMIC relayed that a 750 lbs. medium and large 1 frame steer in Kansas averaged above $140/cwt. for January and February. In November and December 2019, those prices were over $145/cwt. By July 2019, fed cattle prices in Kansas averaged $95.23/cwt., which LMIC said left only $200-$300 to cover variable costs during the feeding timeframe per animal.

“For most feedlots, regardless of feeding 120 days or 180 days, it was not enough to cover costs.  KSU feedlot data suggests that the cost of gain was about $500 per head in May to feed a steer to slaughter weight.”

And while July was the bleakest month so far, LMIC said feedlots are still likely to face further losses in 2020. 

“Feeder cattle prices did come down in March through May, but June and July added $10 plus per cwt to those prices.”

According to LMIC, feed costs are still expected to be lower than a year ago, but the large risk to the feedlot sector remains fed cattle prices. 

“As a margin business there is still a large amount of uncertainty for cattle marketed in the next few months.”

LMIC projects breakeven prices for August at $109/cwt., with fed cattle prices well below that figure. September marketed cattle face a lower breakeven which in early August indicated a net return very close to $0 per head. 

Fourth quarter prospects, however, are more promising, LMIC said, in part due to lower projected breakeven levels.

“Live cattle futures contracts, too, are more optimistic in those months and indicate cattle feeders may see profits heading into next year.”

LMIC currently projects those gains less than $100/head. 

Still, a lot of uncertainty in the fed cattle market remains, which LMIC said “is very much contingent on beef demand.”

LMIC projections for fed cattle prices are in line with the recent futures, if not slightly more optimistic for December and into 2020.

About the Author(s)

Krissa Welshans

Livestock Editor

Krissa Welshans grew up on a crop farm and cow-calf operation in Marlette, Michigan. Welshans earned a bachelor’s degree in animal science from Michigan State University and master’s degree in public policy from New England College. She and her husband Brock run a show cattle operation in Henrietta, Texas, where they reside with their son, Wynn.

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