Sep 25, 2016 by Lee Hart

Why some cattle feeders are bleeding red

When I woke up on a recent morning to the surprising news that Western Feedlots at Strathmore, east of Calgary had announced it was closing down, I started wondering what couldfeeder cattle small have gone wrong.

Here is what I always considered was a professional, well run operation ——was this announcement a result of the ongoing downturn in the beef industry economy, or was it perhaps a result of some poor management decisions the outside world wasn’t aware of?

So I turned to a long-time market analyst for some thoughts on how feeding economics work, not only for a 100,000 head operation but for feedlots in general.

If a feedlot buys a 600 pound steer at $2 per pound and the animal is finished to 1,450 pounds, the breakeven selling price is about $1.35 per pound. That’s roughly where the finishing market is today and it appears that price will remain flat over the next eight to 10 months.

However, over just the past year (since late 2015), the feeding industry in general has lost about $280 per head, and there have been some periods when per head losses were as high as $400 per animal.

Western Feedlots, with three yards, has a total capacity for 100,000 head at one time. On average, a feeder will turn that number over two and half times for a total of 250,000 head of cattle per year. So if you’re looking at a loss of $280 per head, multiplied by 250,000 head, the feeder is looking at a potential loss of $70 million per year. That translates into a hit of about $6 million a month, or about $200,000 per day. It takes some very deep pockets to cover that kind of loss.

Could these losses have been avoided? With increased production across the North American cattle industry — increased beef supply — it didn’t appear that finished cattle prices were going to increase.

Many feeders ignored advice last year not to fill their pens in hopes of a rebound in finished cattle prices — it hasn’t happened. After decent returns in 2014 and early 2015 some feeders also stocked up last fall to reduce the risk of paying taxes. And if feedyards had 40 to 100 employees and full silage pits, that was another pressure to keep the place operating.

I don’t know if any feeder is making great money, but the yards that didn’t load up on higher priced cattle last fall, and are waiting for lower feeder cattle prices this year, reduced their risk, and appear to at least be in survival position.

Lee Hart is editor of Cattleman’s Corner based in Calgary. Contact him at 403-592-1964 or by email at [email protected]

 

 

 

 

 

 

 

Lee Hart

Lee Hart


Lee Hart is a long-time farm writer, and honorary member of the Alberta Institute of Agrologists, with many observations on the agriculture industry, who never hesitates to admit he is wrong (should that ever happen.)


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