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| Are you cow/calf, or do you have a feedlot?
On cow/calf - for years and years uncertainty was priced into feeder cattle. They were discounted due to the risk in feeding cattle. Now, for the last several years, this has flipped, and cow/calf operators have been on the other end and reaping the benefits as expectations of fewer and fewer numbers inflates feeder cattle prices. Cattle feedlots have been on the short end recently. This has several causes, IMHO. Knowledge of declining cattle numbers has made for a premium in the feeder cattle price. Deferred futures - purchased by specs for awhile - made sure that feeders were (historically) overpriced. Losses (if no hedging was done) were the rule. Adding to this over-optimism due to expectations of shortages was the increasing oversupply of cattle feedlots. Today, we have approximately 30% too many feedlots for the number of cattle to be fed. (It's cheap to add a lot in many areas of the country.) If you were sitting here with me, I could show you with charts just exactly how this has happened. Along with this lack of profit in cattle feeding - you might not believe this, but I could show you with a single chart where, if in this recent huge bull market in cattle, if you had been long the futures, you would have *lost money*. Well, the prices you pay for feeder cattle are based on these futures contract prices, so hopefully you can understand why there has been so many losses in cattle feeding.
But, as garvo says, you have to follow the total dollars from ranch to retail. $/pound comparisons just show poor math skills. There is a lot of shrinkage. How much profit are we actually talking about?
Maybe the big retailers like Walmart are making lots of money. I don't know. But, from what I have seen, it probably isn't the packers. I recently posted a chart here that showed how I think this last price explosion happened. It was, IMHO, due to denial of the shrinking number of cattle on feed for long enough that when the s*** hit the fan, it took everyone by surprise. This could have been a case of price manipulation, but even then, it is probably much more likely that it was the retailers rather than the packers. Or, it could just as easily have been ignorance - simply ignoring the signs until it was too late to rations supplies - both price rationing of supply and adding to supply by feeding the cattle on feed longer and producing extra tonnage.
But I understand - when someone has spent a lifetime bashing packers, it can be difficult to believe a chart like the one I posted showing poor packer profitability. | |
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Have packers beat the dog so much it won't come when they call
