Cheaper feed and more cattle should help stem losses for U.S. feedlots this year, livestock analysts say, keeping beef supplies flowing just as demand starts to pick up.
That should translate into lower prices for hamburgers and steaks for consumers, as it could help keep feedlots in operation and avoid costly bottlenecks in beef production.
Feedlots, which fatten up cattle ahead of slaughter, have suffered through 15 straight months of red ink. Soaring prices for the 600-900 pound calves they take in and sliding bids from packers, whose beef faced tough price competition from other meats, squeezed margins. But now there are faint signs of a turnaround.
In February, feedlots on average reduced losses to $218 per head - a sharp improvement from the $500 losses in December, as estimated by Colorado-based Livestock Marketing Information Center (LMIC).
How much longer feedyards can withstand prolonged losses depends on an operation's size and focus, along with the ability to be flexible about using different sources of feed, experts said. Other strategies for coping include using futures and options for hedging, or dipping into profit from earlier times to survive the rough patches.
Some feedlots have been forced to close, as reflected in the U.S. Department of Agriculture's revised figures that showed 2015 feedlot totals at 27,189, down from 28,127 in 2014 and 29,090 the year before.
Better times ahead
At present, the cost of calves for feedlots is falling as farmers build up the U.S. herd, which hit a 63-year low in 2014 because of a drought that shriveled crops. By Jan. 1, the U.S. cattle population was at a five-year high of 92 million.
During the month of February, the number of animals put into feedyards was the highest for that month in eight years, according to U.S. government figures released last Friday.
Earlier this month, meat processor Cargill Foods [CARGIL.UL] said it was betting on bigger supplies to reduce retail costs when it bought a ground beef processing plant.
With herd rebuilding well under way, "the increased supply should benefit our customers and consumers over the next few years," Cargill said in early March.
At the same time, prices for cattle ready for slaughter have rebounded to around $139 per hundredweight (cwt) from around $117 late last year, when supplies were facing burdensome amounts of meat and dwindling demand as the traditional barbecue season ended.
With slaughter cattle prices up from lows and the potential for more increases as Americans dust off grills for spring barbecuing, there could be a turnaround in feedlot returns, Texas A&M University economist David Anderson said.
Craig Uden, who co-owns a feedlot in Nebraska, has been fattening cattle for nearly 35 years and considers this one of the roughest periods for feedlots he has seen. It will require years, not months, to recover, he said.
"It will be a long process because this is pretty severe. I'm in it for the long haul."