The macro-economic factors happen to be lined up to benefit cow-calf producers for the next several years, to the disadvantage of cattle feeders.
It’s a good time to sell calves; I’m not talking about market timing, but in general. As the saying goes, the grass is always greener on the other side of the fence. Cow-calf producers are no different. We enviously look at those who feed or process cattle; after all, it seems like they make their share of obscene profits, and do it with a fraction of the risk we face. Not only do they have much better risk management tools available to them, but they own the cattle for just a fraction of the time the cow-calf man typically does. It always seems that “them other guys” are always making more money.
I was eating lunch with friends at the sale barn recently, and one individual complained about the lack of profitability, high feed costs, and that the other segments were profiting off of his hard work. I didn’t think too much about it until two headlines came across in my email later that day.
The first detailed the bankruptcy of a packing plant. It was another one of those attempts to capture those obscene packer profits that always seem to result in far more liabilities than assets, and bankruptcy.
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The second headline was more appealing. It brashly stated that feeding margins had taken a big step forward. But when I read further, the improvement was to a negative $125/head!
Typically, losses in the packing industry tend to be frequent but relatively short lived. Packers respond to negative margins by reducing numbers and bid prices, and raising their asking price. Feeders typically are slower to respond to negative margins, and it’s not uncommon to see losses for two or more turns of cattle before feeders finally purchase some profits back.
However, it’s not only miscalculations about costs or expected prices that create negative returns. It’s also affected by macro-economic factors. Those factors happen to be lined up to benefit cow-calf producers, and disadvantage cattle feeders, for the next several years.
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