Cattle Feeders: Competing to Sell Cattle for the Lowest Price

The Cattle Range – February 23, 2021

In February of 2013, fed cattle were trading at $125.00 per cwt. and the Choice Boxed Beef cutout was at $182.56.
In early 2013, Cargill issued the following statement regarding its 4,500 head per day beef processing facility in Plainview TX
“Cargill announced that it will idle its Plainview, Texas, beef processing facility effective at the close of business, Friday, Feb.1, 2013, resulting primarily from the tight cattle supply brought about by years of drought in Texas and Southern Plains states.  The U.S. cattle herd is at its lowest level since 1952.  Increased feed costs resulting from the prolonged drought, combined with herd liquidations by cattle ranchers, are severely and adversely contributing to the challenging business conditions we face as an industry.”
Len Steiner & Steve Meyer, CME Group Daily Livestock Report, explained the closure…
“Packers can live with slightly tighter margins when slaughter totals are large but need higher margins when numbers are tight. Of course, the supply situation for animals pushes margins in just the opposite direction – tighter when numbers are low and wider when numbers are high.
All of this is a prelude to point out that packer margins have not been good at all. Beef packer margins were below the 2007-11 average for virtually all of 2012 and were FAR below those historical levels in Q1-2012. From August onward, gross beef margins were lower than the five-year average every week except three, and have been lower than that average every week so far in 2013.
Further, the net margins since August have been, by all reports, deep in the red – a factor which, along with prospects of lower cattle numbers in coming months, contributed to Cargill’s decision to close its Plainview, TX, plant.”
Fast Forward to February of 2021 with fed cattle @ 114.00 and the Choice Cutout @ 240.29...  So why, compared to 2013, is the price for fed cattle 10% lower when beef is 25% higher?
Since the 2013 closing of Cargill’s Plainview plant, beef processing capacity has not increased significantly while the U.S. cowherd has increased by about 2,000,000 head.  Today, with their plants running at nearly full capacity, the packing industry finds itself in the profitable position of being able to both maximize profits by restricting the amount of beef available to consumers and to force cattle feeders to compete for the limited slaughter availability by bidding against each other to sell their cattle for the lowest price.
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