Economic Tidbits

Prospects for the Cattle Sector

Calving is an annual rite of spring in Nebraska as a majority of Nebraska’s cow/calf producers calve during the spring. Both feeder and fed cattle prices are higher this year compared to recent years, but costs for feed, fuel, and other inputs are also higher. Plus, drought conditions continue to menace Nebraska cattle producers. So, what are the prospects for positive returns in the cattle sector this year?

To gauge possible returns for the state’s cow/calf producers, a representative budget for a 400-head cow herd in the northern panhandle, developed by the UNL Department of Agricultural Economics in December, was updated to reflect current prices and conditions. It is assumed weaned calves are sold in November with the price received based on current November feeder cattle futures contract price and a historical average basis. This results in a price received of $214.03 per cwt. for 500-600 lb. steers. In comparison, latest weekly average price reported for 500-600 lb. feeder steers is $200.31 per cwt. (Figure 2). The costs in the budget include variable costs like feed and fuel as well as overhead, opportunity costs, and taxes. More information on the representative ranch and other ranch budgets can be found at: https://agecon.unl.edu/publications/cattle-budgets.

Figure 2. Nebraska Weekly Feeder Steer Prices, 500-600 lbs.

Source: USDA, Agricultural Marketing Service

The bottom line suggests a loss $136 per cow for Nebraska cow/calf producers this year. Many assumptions are made to develop the estimates, and every cow/calf operation is unique, so the results are not necessarily reflective of every operation. However, a similar budgeting exercise by economists at Kansas State University in December showed a potential loss of $194 per cow. It would appear this year portends of a difficult one financially for cow/calf producers, but perhaps not as bad as last year when losses were estimated to exceed $200/cow. The ongoing financial difficulties for the cow/calf sector is evidenced by the larger beef cow and heifer slaughter this year.

Looking at the feedlot sector, Glynn Tonsor of Kansas State University provides monthly estimated net returns for cattle finishing operations for a typical Kansas feedlot which can be a proxy for financial conditions for Nebraska feedlots. The estimates reflect a cash market situation with no price risk management strategies implemented and are based on forecasts of animal performance and market prices. Figure 3 shows monthly returns since 2002 and estimated returns for the remainder of 2022. Tonsor estimates positive per head returns for closeouts during the first half of the year, but returns are expected to turn negative beginning in July before turning positive again in December.

Figure 3. Average Net Returns for Finishing Steers in Kansas

Source: Glynn Tonsor, Historical and Projected Kansas Feedlot Returns, KSU, April 11, 2022.

Finishing up, projections suggest cow/calf producers could experience losses this year while returns will be mixed for the feeding sector. For Nebraska agriculture as a whole, the contrast between expected returns for the state’s crop and beef producers demonstrates the value of diversification—while margins for one sector are down, margins from another sector mitigate the losses. Not much consolation though if one is a cattle producer.

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