By Michael Langemeier
Average fed cattle prices increased from an average price of $161 in the first quarter of 2023 to $180 in the third quarter, or 12%. In addition, feed-increment spending has declined since its peak earlier this year. These two phenomena represent the good news. Now for the not so good news. Feeder steer prices have risen significantly from their levels earlier this year. Obviously, the net return on cattle production depends on fed cattle prices, feeder cattle prices, and feed profit costs. This article will focus on recent trends in feeder and breakeven prices and provide forecasts for the next few months.
Historical profitability rates
Breakeven prices are sensitive to changes in profit feeding costs, feed prices and interest rates. Monthly issues of Focus on places to eat newsletter were used to obtain information on the cost of feeding for profit. Historical and forecast feed prices were obtained from the Livestock Marketing Information website. Interest rates are obtained from the Federal Reserve Bank of Kansas City.
Figure 1 illustrates breakeven prices from January 2013 to September 2023, as well as projections to 2024. In this section, we will focus on historical breakeven prices. In the next section, we discuss our predictions. As can be seen in Figure 1, breakeven prices have been increasing rapidly since the fourth quarter of 2022. After averaging approximately $155 per quintal in the fourth quarter of 2022, breakeven prices averaged approximately $168.40 per quintal in the first quarter in 2023 and $167.40 per quintal in the second quarter. The average breakeven cost for the third quarter of this year was approximately $174.20.
Although not the focus of this article, the net return can be determined using the difference between the price of fed cattle and the breakeven price in Figure 1. Since April of this year, the price of fed cattle has been higher than the price at zero levels with the largest gaps (ie, largest net value returns) occurring in June and July. Whether this relationship between the cost of fed cattle and the cost of profitability continues will be discussed below.
Projected cost-effective prices
Breakeven prices are expected to average around $186 per weight in the fourth quarter of 2023, with the highest breakeven price of $196 per weight seen in December. What about the difference between fed cattle and break even prices? The gap is forecast to be positive in October and November and then turn negative as we move into December.
For the first half of 2024, breakeven prices are expected to range from $193 to $197 per weight. Will these breakeven prices lead to losses in finishing cattle? They very well could. However, given the relatively tight supply of beef, the potential monthly differences between fed cattle and breakeven prices, or net returns, are very difficult to predict.
Summary and conclusions
Feeder cattle prices have risen over the past few months. At the same time, due to lower corn prices, feed costs have also decreased. Partly in response to these two phenomena, feed-in prices and break-even prices have increased significantly. Breakeven prices for the fourth quarter of this year are expected to be $10 per weight higher than those for the third quarter. Moreover, breakeven prices in early 2024 are expected to be $10 per hundredweight higher than forecast breakeven prices for the fourth quarter of this year. These large increases in break-even prices increase the uncertainty surrounding the outlook for net returns over the next several months.