"Cattle feeding has mostly become a game of small margins on economies of scale mired in risk management that many times offers more opportunities than the cash position itself," say analysts with the Agricultural Marketing Service. "Most feedlots refuse to operate with empty pens, and their desire to maintain inventories causes an accumulation of feeder cattle that have unrealistic breakevens."

That's one reason cattle feeders are pushing snug calf and feeder cattle supplies to record and near-record high prices, despite poor cattle feeding margins. According to the October Cattle Finishing Returns from Kansas State University, the breakeven price for October was expected to be $122-$123/cwt., resulting in a loss of $24-$45/head. Breakeven prices for this month and next were pegged at $124-$128.

Fed cattle prices and wholesale beef prices are also at record and near-record levels with extraordinarily strong domestic consumer beef demand, given the tottering economy. Steamy beef export demand continues to help underpin those prices. Choice wholesale boxed-beef cutout values are near $200/cwt.

Earlier this month, David Anderson, Texas AgriLife Extension ag economist, pointed out that fed cattle prices last year were $98/cwt., compared to the recent highs of $127/cwt.

"The seasonal price pattern usually peaks in the springtime but with another peak late in the year, and that's exactly the kind of seasonal pattern we've seen this year," Anderson says. "Prices were more than $120 for fed cattle in April, and now are back up over $120 again, after hitting a summertime low of about $104."

Though the seasonal ups and downs are to be expected, Anderson explains the prices are being driven to unprecedented levels by several factors, including strong beef export demand as well as some break in feed costs. The key driver, though, continues to be the historic drought in the Southern Plains.

Tim Petry, North Dakota State University livestock economist, pointed out in last week's In the Cattle Markets that placement weights in November's Cattle on Feed report continue to reflect the drought.

"Placements of calves under 600 lbs. were up 11% over last year, while 600-699-lb. placements were down 6.25%, with 700-799 lbs. down 2.7%, and the 800-plus-lbs. category down 6.4%," Petry says. "Many of the under-600 lbs. calves would normally be placed on winter wheat that is not available this year due to drought conditions.

"The decline in placements in the over-600-lbs. category was expected and more in line with the fewer number of feeder cattle that are available. USDA-NASS reported that there were 2.5% fewer calves and feeder cattle outside of feedlots in the July 1 cattle inventory report. Expectations are that placements will continue to fall below last year in the next several months."

Meanwhile, analysts in this month's Livestock, Dairy and Poultry Outlook, said: "Drought continues to dominate non-fed slaughter, despite recent rains that provided temporary relief and promoted emergence of winter wheat in the Southern Plains. One result of the continuing drought is that proportionally heavy cow and bull slaughter rates and declining supplies of Choice-grade cattle have decreased the relative supply of Choice beef and contributed to a widening spread between Choice and Select steer and heifer cutout values (see "Choice-Select Spread Grows"). Walmart's decision to sell Choice beef has also contributed to the demand for Choice beef."