Cattle finishing returns to be near breakeven prices
Breakeven levels likely in first half of 2021, with chance for positive net returns in second quarter.
Krissa Welshans, Feedstuffs
Oct 15, 2020
The cattle industry continues to navigate the impacts of the COVID-19 pandemic, but Purdue University agricultural economist Michael Langemeier reported in "farmdoc daily" that cattle finishing net returns for the rest of 2020 are expected to be much closer to breakeven prices. He provided updates to feeding cost of gain, breakeven prices and net return estimates for the first nine months of 2020 as well as projections through the second quarter of 2021.
According to the report, feeding cost of gain averaged $84.37/cwt. in 2019, ranging from a low of $81.61 in October to $91.67 in March. Feeding cost of gain averaged $83.27/cwt. in the first quarter and $84.28 in the second quarter of 2020. Projected feeding cost of gain for the third and fourth quarters of 2020 are $78.75 and $80.75, respectively.
Langemeier noted that feeding cost of gain is sensitive to changes in feed conversions, corn prices and alfalfa prices. Regression analysis was used to examine the relationship between feeding cost of gain and feed conversion, corn prices and alfalfa prices. Results were as follows: each 10-cent increase in feed conversion increases feeding cost of gain by $1.24/cwt., each 10 cents/bu. increase in corn prices increases feeding cost of gain by 88 cents/cwt. and each $5-per-ton increase in alfalfa prices increases feeding cost of gain by 50 cents/cwt.
Net returns, which were computed using closeout months rather than placement months, averaged a loss of $80 per head in 2019. Net losses averaged $10 in the first quarter and $165 per head in the second quarter. Although large, Langemeier noted that this was approximately $90-per-head lower than his estimates in early May. As July rolled around, lower fed cattle prices and a high feeder-to-fed-cattle price ratio led to losses of $265 per head. By August, losses were less, at $65 per head.
According to Langemeier, breakeven prices for the first two quarters of 2020 averaged...