Cattle Profitability
Corn and soybean producers are looking forward to a profitable year as they enter the fields this spring. Another rite of spring in Nebraska is the calving season as a majority of cow/calf producers calve in the spring. Unfortunately, in contrast to the the state’s crop producers, the state’s cattle producers will likely struggle to see positive returns this year.
Feeder cattle prices are higher this year compared to last year, but they are still below the 5-year average (Figure 1). Costs for feed, fuel, land, and other inputs are also higher. Plus, drought conditions continue to menace producers in the Sandhills and Panhandle contributing to the financial squeeze.
To gauge profitability this year for the state’s cow/calf producers, a representative budget for a 400-head cow herd in the northern Panhandle, developed by the UNL Dept. of Agricultural Economics, was updated with current prices, costs, and conditions. It was assumed weaned calves were sold in October with the prices received based on the current October futures price and a historical average basis for October. This results in a price received higher than current prices, counter to typical seasonal price patterns seen in Figure 1. The costs in the budget include 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 1. Nebraska Weekly Feeder Steer Prices, 500-600 lbs.
The result of the budgeting exercise suggests a loss of $230 per cow this year. Many assumptions are made for the estimates, and every cow/calf operation is unique, so these results are not reflective of every operation. However, a similar budgeting exercise by economists at Kansas State University in December showed a potential loss exceeding $300 per cow. Thus, it would appear this year foretells of a difficult one financially for cow/calf producers. This is evidenced by the fact that beef cow and heifer slaughter was larger in the first quarter of this year compared to past years.
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. Although the estimates are specific to cattle feeding in Kansas, they 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 2 shows monthly returns since 2002 and estimated returns for the remainder of 2021. Positive per head returns for closeouts between now and September are forecast. However, returns are expected to turn negative beginning in October.
Figure 2. Average Net Returns for Finishing Steers in Kansas
Finishing up, cow/calf producers are expected to 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 this year.
