Bloomberg Anywhere Login

Bloomberg

Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.

Company

Financial Products

Enterprise Products

Media

Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000

Communications

Industry Products

Media Services

Follow Us

U.S. Cattle Feedlots May Face Losses on High Feed Costs

Feb. 6 (Bloomberg) -- U.S. cattle feedlots will have “slightly negative margins” this year amid high costs for livestock feed, said Michael Swanson, an agricultural economist at Wells Fargo & Co.

The U.S. herd as of Jan. 1 shrank to a 61-year low after the most-severe drought since the 1930s, the government said last week. Midwest corn output withered, sending the price of the main ingredient in feed to an all-time high in August, and cattle futures rose to a record in January.

“Economically, we use price to ration or to increase supply,” Swanson said in an interview today after his presentation at a cattle-industry conference in Tampa, Florida. “Our supply is that much more constrained.”

The cost of wholesale and retail beef and cattle futures will extend rallies to records amid constrained supplies, Minneapolis-based Swanson said. Feedlots still have made “aggressive” bids for animals, squeezing margins, he said.

Cattle prices rose to a record $1.35175 a pound on the Chicago Mercantile Exchange on Jan. 11. In 2012, futures climbed 8.9 percent, the fourth straight increase.

Higher animal weights tempered the decline in the size of the herd, supporting beef production, Swanson said. Average steer weights were 1,503 pounds (682 kilograms) in the first two days of this week, up 1 percent from a year earlier, USDA data show.

It’s unclear whether meatpackers will allow weights to go up, Swanson said. Heavier animals yield more fat that can’t be sold, and high corn costs make raising beefier cattle less attractive, he said.

If corn prices “drop like a stone,” there will be “a swing to profitability,” Swanson said.

Wells Fargo, based in San Francisco, is the biggest U.S. agricultural lender.

To contact the reporter on this story: Elizabeth Campbell in Tampa at ecampbell14@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

Please upgrade your Browser

Your browser is out-of-date. Please download one of these excellent browsers:

Chrome, Firefox, Safari, Opera or Internet Explorer.