May 2017 Cattl Finishing Nt Rturns in 2017 A Bit Diffrnt from a Yar Ago Michal Langmir, Associat Dirctor, Cntr for Commrcial Agricultur With th xcption of May 2016, monthly fd cattl nt rturns wr ngativ from Dcmbr 2014 through Novmbr 2016. As notd in Langmir (2016), prospcts for 2017 appar much brightr. This articl discusss prospcts for fding cost of gain, th fdr to fd cattl pric ratio, and cattl finishing nt rturns. Svral data sourcs wr usd to comput monthly nt rturns. Avrag daily gain, fd convrsion, days on fd, in wight, out wight, and fding cost of gain wr obtaind from monthly issus of th Focus on Fdlots nwslttr. Futurs prics for corn and sasonal fd convrsion rats wr usd to projct fding cost of gain. Nt rturns wr computd using fding cost of gain from monthly issus of th Focus on Fdlots nwslttr, fdr cattl prics and fd cattl prics rportd by th Livstock Markting Information Cntr (LMIC), and intrst rats from th Fdral Rsrv Bank of Kansas City. A rcnt farmdoc articl discussd th importanc of fding cost of gain and th fdr to fd pric ratio to cattl finishing nt rturns (Langmir, 2017). Givn this importanc, w discuss trnds in fding cost of gain and th fdr to fd pric ratio bfor laborating on nt rturn prospcts. Figur 1 illustrats monthly fding cost of gain from January 2007 to March 2017. Fding cost of gain avragd $85.16 pr cwt. in 2015 and $77.20 pr cwt. in 2016. In th first thr months of 2017, fding cost of gain rangd from $71.83 to $73.05 pr cwt. Givn currnt corn and alfalfa pric projctions, fding cost of gain is xpctd to rang from $70 to $75 for th rst of 2017. Th ratio of fdr to fd cattl prics from January 2007 through March 2017 is illustratd in figur 2. During this priod, this ratio avragd 1.19. Th fdr to fd pric ratio was on standard dviation blow (abov) this avrag for 10 (20) months during this priod. Th avrag nt rturn for th months in which th ratio was blow on standard dviation of th avrag was $87 pr had. In contrast, th avrag loss for th months in which th ratio was abov on standard dviation of th avrag was $251 pr had. Of th 20 months with a ratio abov on standard dviation of th avrag fdr to fd pric ratio, 17 of ths months hav occurrd sinc January 2015. Now for th good nws. In March 2017, th fdr to fd cattl ratio was blow on standard dviation of th 1.19 avrag. Morovr, givn currnt pric projctions, th fdr to fd pric ratio is xpctd to rmain at or blow th tn-yar avrag through August 2017. For April, May, Jun, and July, th fdr to fd pric ratio is xpctd to rmain blow 1.10. Ths rlativly low ratios, along with rlativly low xpctd fding cost of gain, translat into som xcllnt nt rturn prospcts for ths months. Of cours, an 2017 Purdu Univrsity Cntr for Commrcial Agricultur 1
unxpctd drop in fd cattl prics would crat a spik in th pric ratio, dampning nt rturn prospcts. Bfor discussing monthly cattl finishing nt rturns, lt us brifly discuss why th fdr to fd cattl pric is xpctd to b so low from March 2017 through July 2017. Months in which th ratio is clos to avrag translat into nt rturns that ar around th brakvn lvl. Months in which th ratio is rlativly low or rlativly high translat into larg losss or larg positiv nt rturns. In gnral, ratios that ar rlativly low or rlativly high rsult from unxpctd changs in fd cattl prics. Larg ngativ shocks in fd cattl prics, as occurrd from August to Dcmbr 2015 and from August to Octobr of 2016, crat spiks in th pric ratio. Convrsly, larg positiv shocks, such as thos xprincd in arly 2011 and th first fw months of 2017, crat sharp dclins in th pric ratio. Fd cattl prics improvd from approximatly $120 pr cwt. in January 2017 to approximatly $130 pr cwt. in April 2017. At th sam tim, fdr cattl prics for January through April closouts fll from $145 pr cwt. in January to $130 in April. Th pric changs notd abov rsultd in a sharp dclin in th fdr to fd cattl pric ratio and a dramatic improvmnt in nt rturn prospcts. Monthly str finishing nt rturns from January 2007 to March 2017 ar prsntd in Figur 3. It is important to not that nt rturns wr computd using closout months rathr than placmnt months. Avrag losss in 2016 wr $126 pr had, and rangd from a loss $362 pr had in January to a nt rturn of $57 pr had in May. Nt rturn pr had for January, Fbruary, and March of 2017 wr approximatly $56, $149, and $308, rspctivly. Th nt rturn in March rprsnts th first tim sinc Novmbr 2003 that monthly nt rturn has bn abov $300 pr had. Historical and brakvn prics for th last tn yars, as wll as projctd brakvn prics for th rst of 2017, ar illustratd in figur 4. Brakvn prics for April through August ar xpctd to rang from $106 to $110 pr cwt. For th last four months of th yar, brakvn prics ar xpctd to rang from $113 to $116 pr cwt. Currnt fd cattl pric projctions suggst that th brakvn prics indicatd abov could rsult in strong nt rturns through August, with nt rturns bing particularly strong through Jun (i.., xcding $150 pr had). At this tim, at last modst nt rturns ar xpctd for th last four months of 2017. Howvr, if fdr cattl prics continu to strngthn, nt rturn prospcts for th last quartr of 2017 will wakn. This articl discussd rcnt trnds in fding cost of gain, th fdr to fd pric ratio, and cattl finishing nt rturns. Currnt brakvn and fd cattl pric projctions crat an nvironmnt that is optimistic through August and cautiously optimistic through th rst of 2017. Aftr a disastrous 2015 and 2016, this is crtainly wlcom nws. 2017 Purdu Univrsity Cntr for Commrcial Agricultur 2
Citations Focus on Fdlots, Animal Scincs and Industry, Kansas Stat Univrsity, www.asi.kstat.du/about/nwslttrs/focus-on-fdlots, accssd May 8, 2017. Langmir, M. Impact of Lowr Corn Prics on Fding Cost of Gain and Cattl Finishing Nt Rturns. farmdoc daily (6):193, Dpartmnt of Agricultural and Consumr Economics, Univrsity of Illinois at Urbana-Champaign, Octobr 13, 2016. Langmir, M. Nt Rturn Prospcts for Cattl Finishing in 2017. farmdoc daily (7):40, Dpartmnt of Agricultural and Consumr Economics, Univrsity of Illinois at Urbana- Champaign, March 3, 2017. Livstock Markting Information Cntr, www.lmic.info/, accssd May 8, 2017. 2017 Purdu Univrsity Cntr for Commrcial Agricultur 3
160 140 Figur 1. Fding Cost of Gain for Strs, Kansas Sourc: Focus on Fdlots Nwslttr $ P r C w t 120 80 60 40 20 0 07.05 07.09 08.05 08.09 09.05 09.09 10.05 10.09 11.05 11.09 12.05 12.09 13.05 13.09 14.05 14.09 15.05 15.09 16.05 16.09 Closout Month 2017 Purdu Univrsity Cntr for Commrcial Agricultur 4
Figur 2. Ratio of Fdr Prics to Fd Cattl Prics, Kansas 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 Monthly Avrag 0.00 07.04 07.07 07.10 08.04 08.07 08.10 09.04 09.07 09.10 10.04 10.07 10.10 11.04 11.07 11.10 12.04 12.07 12.10 13.04 13.07 13.10 14.04 14.07 14.10 15.04 15.07 15.10 16.04 16.07 16.10 2017 Purdu Univrsity Cntr for Commrcial Agricultur 5
400 Figur 3. Historical Nt Rturns for Finishing Strs, Kansas Sourc: Michal Langmir, Purdu Univrsity 300 $ P r H a d 200 0 200 300 400 500 600 07.04 07.07 07.10 08.04 08.07 08.10 09.04 09.07 09.10 10.04 10.07 10.10 11.04 11.07 11.10 12.04 12.07 12.10 13.04 13.07 13.10 14.04 14.07 14.10 15.04 15.07 15.10 16.04 16.07 16.10 Closout Month 2017 Purdu Univrsity Cntr for Commrcial Agricultur 6
Figur 4. Fd Cattl and Brakvn Prics, Kansas Sourc: Michal Langmir, Purdu Univrsity 200 Fd Pric BE Pric $ P r 175 150 125 C w t 75 50 07.04 07.07 07.10 08.04 08.07 08.10 09.04 09.07 09.10 10.04 10.07 10.10 11.04 11.07 11.10 12.04 12.07 12.10 13.04 13.07 13.10 14.04 14.07 14.10 15.04 15.07 15.10 16.04 16.07 16.10 17.04 17.07 17.10 2017 Purdu Univrsity Cntr for Commrcial Agricultur 7