Producer Margins Nose-Dive

April 30, 2020

Cattle and hog feeding margins declined significantly the week ending April 25, 2020, as harvest capacity at both beef and pork facilities was significantly reduced by the coronavirus pandemic.

Cattle feeding losses reached $262 per head, compared to a $24 per head profit just one month prior. Hog producers saw losses of $50 per head after recording profits of about $3 per head a month ago. Both beef and pork Profit Trackers are calculated by Sterling Marketing, Inc., Vale, Ore.

Packer margins for both beef and pork increased dramatically as the wholesale values of both spiked higher. Sterling Marketing calculated beef packer margins at $771 per head, or $304 more than the previous week. Pork packer margins were calculated at $67 per head, or $36 per head higher.

Sterling Marketing president John Nalivka noted his Profit Trackers have become increasing hard to calculated given the impacts of the coronavirus on packing companies.

“Packing plant operating costs have increased notably in the face of plant closures and production slowdowns,” Nalivka said. “While it is difficult for me to truly model the per head costs in the packing plant in the current situation, I definitely recognize those higher costs as plants accommodate worker safety with COVID-19 testing, worker temperature monitoring as they enter the plant, spacing, and shields to protect workers on the line, not to mention higher per unit costs as the result of reduced production output.”

Beef Profit Tracker

“With regard to feedlots, finished cattle that need to go to the plant but haven’t, can stand in the feedlot longer,” Nalivka said. “But, cost of gain at this point increases exponentially as feeding performance for cattle at market weight is sharply reduced. Higher cost of gain = higher breakeven price = mounting losses against significant market uncertainty.”

Pork Profit Tracker

“The situation in farrow-to-finish hog production operations is much more dire as the system is built on throughput efficiencies. That system is totally disrupted when packing plants are not operating or operating with sharply reduced production,” Nalivka said. “Finished market hogs are not the same situation as finished cattle. At the same time, feeder pigs are ready and need to be placed in the finishing barn – of which there is now no space. This situation goes well beyond feeding at higher cost of gain.”

For the week ending April 25, the Beef Profit Tracker calculations were based on cash cattle prices of $96.14 per cwt., and a Choice beef cutout price of $259.52 per cwt.

The Pork Profit Tracker calculations were based on negotiated lean carcass hog prices of $37.25 per cwt., and a pork cutout prices of $72.69 per cwt. The margin calculations for both beef and pork producers is on a cash basis only, and does not include any risk management.Source: American Farm Bureau Federation

Source: Drovers