Iowa Farmer Today

Shane Ellis was not surprised the nation’s feedlot inventory was down 7 percent, according to USDA’s Cattle on Feed Report released this past week.

“There has been enough of a drop in live cattle futures prices that feedlots are just not that interested in placing cattle,” says Ellis, Extension livestock marketing economist at Iowa State University.

“June futures for fed cattle have fallen from $1.14 (per pound) to 84 cents/lb. You just aren’t going to make any money, even with cheaper corn.”

The inventory totaled 11 million head, down 7 percent from a year ago. Feedlot placements totaled 2.44 million, a drop of 11 percent from a year ago.

Fed cattle marketings in October were down 3 percent from 2007.

Even with feeder cattle readily available and lower feed costs, Ellis says cow/calf producers seem content to background calves, hoping prices in January and February will be better.

He says continued losses in the feedlot have dampened any enthusiasm for feeder cattle.

“Last month, we lost an average of $200 per head with a break-even price of about $1.04/lb.,” Ellis says.

“The question is when does the break-even price start dropping and meet what we believe will be increasing sale prices. A lot of that is going to be tied into the economy because when the economy is bad, it greatly affects the beef industry.”

The best chance for that may be April, he says.

“I think that’s the soonest we can see any profitability. If feed prices hold, the break-even in April will be just under $1/lb. With that, I’m not surprised placements have been down.”

Hog prices continue to weaken, Ellis says. But, he believes some relief may be on the horizon.

“Last year, we had our highest slaughter totals in December. We have consistently slaughtered more than 2.3 million head since mid-September, but I think we will drop below that in the next couple of weeks.

“I don’t think we’ll go below $50 (on a carcass basis), so I think we will see the bottom pretty soon, and I would expect prices to start increasing some in December.”

With cheaper feed costs, Ellis says it might pay for producers to take a look at their feed needs.

“You have to look at your margin for hogs and cattle, and decide what you can live with,” he says. “No one wants to lock in a big loss, so it might be a good idea for those producers to hold off buying feed.

“Corn prices are tied to oil prices and with cheaper oil prices, corn prices have fallen. If oil prices start to go up again, you could see corn go right along with it.”