Commentary by Bill Bullard, CEO, R-CALF USA
Today, we’ll examine what the recent cattle market swings mean for independent cattle feeders, for ranchers who sell them cattle, and for families buying beef.
The central problem is straightforward. Feeders buy cattle and commit substantial money months before those animals are ready for slaughter. When selling prices fall, the bills associated with those cattle don’t fall with them.
And that is the financial squeeze now confronting independent feeders.
Their challenge is managing the gap between costs already incurred and a selling price that remains uncertain. Even cattle prices that look high by historical standards can leave a feeder unable to cover those costs.
USDA’s current price-spread data show fed-steer prices falling from about $258 per hundredweight in May to $221 in September. That’s a decline of more than fourteen percent.
Yet the national average ground-beef price barely moved. The Bureau of Labor Statistics reported about $6.75 per pound in May and $6.79 in September.
So cattle sellers received substantially less, while families continued paying essentially the same price for ground beef.
The government had expressed a clear expectation of consumer relief. In August, the President expanded the lower-duty import quota for lean beef trimmings by 300,000 metric tons. The stated objective was to increase supplies and make ground beef more affordable.
September’s retail figures, covering the first month of that expansion, showed only modest relief from August’s peak.
Meanwhile, cattle feeders faced uncertainty about what their animals would bring when ready for market.
On October 30 alone, December live-cattle futures dropped more than five dollars per hundredweight. Futures prices are different from actual cash sales, but a move like that shows how quickly the market’s outlook can change.
USDA’s High Plains Cattle Feeding Simulator helps explain the exposure.
Using a standard 750-pound feeder steer, the model estimated total expenses of about $3,093 per animal for cattle marketed in May. For cattle purchased in May and marketed in September, modeled expenses were about $3,252.
That’s roughly $160 more per animal in modeled expenses, even as finished-cattle prices were falling.
Most of that increase came from the cost of purchasing the feeder animal. Those costs were committed months before the finished cattle were sold.
Lower feeder-cattle prices would also hurt cow-calf producers and stockers, without reducing the costs of cattle already in feedlots. We need greater stability and predictability, meaning we need competitive cattle markets so every segment of the live-cattle supply chain has a fair opportunity to remain profitable.
The USDA simulator is best used to show the direction of costs. Its recent selling-price and margin figures are inexplicably missing, so we can’t use it as an exact measure of fall losses.
But separate research confirms serious financial pressure. Kansas State estimated August losses of approximately $489 per steer in its cash-market feeding benchmark.
That estimate assumes no hedging. Actual results vary, and hedging can reduce price risk, but it does not guarantee profitability. Repeated losses can drain working capital, weaken a feeder’s borrowing position, and force difficult decisions about continuing in business.
There is another development worth examining.
USDA tracks the price difference between cattle and wholesale beef, and between wholesale beef and retail beef.
From May to September, the packing-stage spread increased by about sixty-four cents per retail-equivalent pound. The wholesale-to-retail spread decreased by twenty cents.
In other words, the widening overall spread occurred at the packing stage.
These spreads must cover operating expenses. They are not measurements of net profit, and they cover Choice beef cuts collectively, rather than ground beef alone.
Still, the finding warrants scrutiny. During the same period, USDA’s estimated farmer share of the Choice-beef retail dollar fell from nearly fifty-six percent to about forty-nine percent.
Our concern is the future of independent cattle feeding.
When an independent feeder leaves the business, ranchers can lose a buyer. If those exits continue to accumulate, competition will be further weakened, leaving producers with fewer marketing opportunities.
An affordable and dependable beef supply requires a domestic cattle industry that can keep producing.
That means the USDA should be paying attention to the financial risks feeders are carrying today, examining how cattle prices move through the beef supply chain, and protecting the competition that gives independent producers a fair opportunity to remain in business.
