Feedlot factors affect bottom line

Torrington – Shawn Walters with Professional Cattle Consultants (PCC) spoke on reduced cattle numbers and increased feedlot profitability during Torrington Livestock Markets and Cattle Country Video’s annual customer appreciation day Feb. 1 at the Goshen County Fairgrounds.
“As of Jan. 1, cattle on feed numbers were running four to five percent above a year ago. Even thought we have fairly tight supplies, we currently have feedyards pretty loaded up. From June through the end of the year placement was up almost every month, and in December it was up 18 percent.
“Within our PCC sample, 48 percent of cattle placed were heifers in December. Another 48 percent were steers, and the remainders were Holsteins.
“Inventory numbers have really been dropping at an alarming rate over the last three years, with both cow slaughter numbers being very high and heifer retention being very low. Having that percentage of heifers placed on feed in December has only happened about eight times in the last 30 years, and seeing heifers come on feed like they are is concerning,” explained Walters.
He added that the beef replacement heifer index was down about five percent in the January 2011 report, but he believes that saying they’re down two to three percent would be more accurate.
“Making that heifer breeding or feeding decision is usually delayed until spring on a large percentage of beef heifers. We’ve seen a jump in the last four years in heifer placement every April or May. People are thinking of retaining heifers for breeding, so they’ll go ahead and keep them back, then that hot spring feeder cattle market hits and she’s worth so much she goes into a feedlot. We saw the same thing this November and December with the high feeder market, and a lot of producers just made the decision sooner. Typically those heifers would still show up in the January report, then be sold in the spring, and that’s why I think five percent is a little high,” explained Walters.
“We are also seeing a shift in where cows are located. The biggest decrease in cow numbers has been in southern states, and especially Texas. In Texas there are miles and miles of ranches that all had cows, but since the last drought much of that area has gone into high-fenced deer ranches. The percentage of cows in the total inventory in northern states has actually maintained or broadened.
“As that’s happened, there has also been a shift in productivity. Your cows in northern states tend to be bigger, more productive, better genetically, from larger herds and better managed. So, it’s probably not a bad thing, with the cattle cycle, to see that shift in productivity at the same time,” added Walters.
The majority of northern cattle are marketed as calves, and Walters noted that when looking at feeder cattle, watching feedlot profit is the number one indicator of prices getting better or worse.
“2010 would be about the second best average profit year we’ve had. We’re coming off five years of losses, and 2010 felt pretty good for the feedlot industry. We were thinking that $30 a head profit was a good number, but we’re now looking at $110 feeding profit per head on average.
“That jump didn’t start until late March or early April of 2010, and we still averaged over $70 a head for the year. For December we saw profit levels at about $65 per head, and it should say at that level well into summer,” said Walters.
He added that from 1973 to now, the average profitability for almost 40 years is zero dollars in feedlots.
“As we gain profit, we give it back on the feeder cattle side. Cycles go up and down – one year ago feedlot breakevens were in the mid-$80s, and we’ve basically taken that to $1.15 today. So, in one year we’ve put $30 on our break evens, and we’ve put $20 into the fed market. We’ve brought ourselves right back out of profit at the feedlot level, and that always happens, it just happened quicker this time,” noted Walter.
“A year ago in January, the feeder cattle index was in the low $90s, and we’ve taken that to almost $130 today, and you contribute almost all of the to the feedlot profitability, which has driven it as far as it has.
“As you’re looking at cattle prices this fall, look at the feedlot profitability, it’s a key index to watch,” he said.
Heather Hamilton is editor of the Wyoming Livestock Roundup and can be reached at heather@wylr.net.