WHERE HAVE ALL THE PROFITS GONE?
Prepared by Hales Cattle Letter
Cattle Feeders And Packers
Still In The “Red”
Normally, when fed supplies are excessive, cattle feeders are losing money and packers are making money as prices trend lower. Conversely, when fed supplies are restricted, cattle feeders are making money and packers are losing money as prices trend higher. Packers are normally in control of a bear market and cattle feeders are normally In control of a bull market. This fall the abnormal has become normal. Both packers and cattle feeders are losing serious money at the same time. Feedlot closeouts are showing fed cattle losses of as little as $30.00 per head to as much as $100.00 per head. Reports suggest that the least efficient packers may be losing as much as $30.00 to $40.00 per head this week.
Since the first of August, fed steer prices have moved sideways to higher while cutout prices have moved sideways to lower. Fed steers were $1.00 higher on the first of December than they were on the first of August. Cutout prices were $6.00 lower.
Retail beef prices (newspaper features) and cutout prices have also moved in opposite directions. Weekly retail prices have moved higher since January of 1996 while weekly choice cutout prices have basically moved sideways to slightly higher, excepting the spike up last fall and the spike down this winter. This week, retail prices are about $0.25 per pound higher than January of 1996 and cutout prices are about the same, $101.85 versus $101.65.
Conclusions
If these uneconomic conditions persist into 1998, cattle feeders must be more careful of selling cattle to the small packer. It won't take much more red ink to push some of them out of business or into bankruptcy.
Packers are going to reduce slaughter rates immediately in an effort to move margins from negative to positive. Most plants will only kill minimum hours next week with Saturday kills curtailed or eliminated.
Even though the industry has reduced the December-February glut by marketing cattle early, there are still 650,000 more cattle to sell in the next 90 days than last year. Projected marketing are piling up for March which makes the April strength suspect. Fed prices will continue to erode and could fall to $62.00 in early 1998.
December 5, 1997 David Hales and Tom Horton
Hales Cattle Letter
P.O. Box 1623, Amarillo, Texas
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