I think some feedlots operators are using DDG for a number years. You have cheap protein in it. US has exported a lof of DDG to china but now its over with the MIR 162 ban. Less exports means more and more DDG in rations.
I draw all the feedlo margin from 1987 using the 2-1.3-4 ratio. The current situation is really exceptionnal ! How can we have such low margin ? Why feedlot are still buying feeder cattle at this price ? I dont understant whats going on. I also backtested to be long when the feedlot margin is low but I get negative P&L... Same thing for shorting the spread on high value
I dont get why you take 70 % of 130 000 lbs ? With your 4-2-8 rations i would have calculated corn used bases on lbs gained between Feeder and Live contratcts : 8*40000-4*50000 = 120 000 lbs. * FCR @ 6 = 720 000 / 56 lbs per bu. = 12857 bu ?
First: Your calculation of the total lbs of 8 Live cattle = 320,000 less the total lbs. of 4 Feeders = 200,000 to get the total weight gain of 120,000 lbs is correct. My calculation as stated is based on 500 lbs gain per Head. 1 feeder = 50,000 / 750 = 66.66666666666+ head. 2 Live @ 40,000 = 80,000 / 1250 lbs = 64 head. So I took an average of 65 head per spread. 4 x 65 = 260 head, x 500 = 130,000 lbs of weight gain. So the deference of 120,000 vs. 130,000 is due to the way I rounded, 320,000 / 1250 lbs only = 256 head. 200,000 / 750 = 266.66666666666+ head. (a little more then 10 head per) Next: You have the 120,000 lbs gain x 6 to get 720,000 lbs / 56 lbs per bu. to get the 12,857 bu. That's correct @ 100% corn rations. However @ 70% you get 84,000 lbs. gain x FCR 6 = 504,000 / 56 lbs. per bu. to get 9,000 bu. At 75% one gets 90,000 lbs. gain x 6 = 540,000 / 56 lbs per bu. = 9,643 bu. If one looks at the Feed Rations, I've seen it as low as 5.13% and as high as 86% of No. 2 Corn. On the high end, No. 2 is all the corn given with 22% alfalfa + 2% protein supplement. On the low end another 51% feed from Corn Silage* and 41% alfalfa + about 2.5 in supplements. The feed rations will vary from Steers and Heifers, season and age of the calf to get the best FCR & Daily Weight possible if the feedlot operator is running an efficient operation. Note: In the recent past I've seen the total corn ration drop to as low as 40 to 45% during the drought. This was due not so much to the high price but to availability in some regions. The beef industry is in constant change, the operations of producer, cattle finishing, and final processing are becoming more and more integrated, further improvements in the FCR and increased use of distillers grains may change the spread yet again. *Corn silage for (lower grade corn) beef rations that produce 1-1/4 to 2 pounds daily growth gain. It works well for starting cattle on feed from range feed. Cattle are easily changed from corn silage to a high-grain finishing ration. Corn silage is often used to furnish minimum roughage levels in high-grain finishing rations.
Thanks for all your explanations ! I get the 70 % story. Do you think alfalfa is correlated with corn ? Do you have any explanation why it seems to be so complicated to get higher number of live cattle in the market ? I follow http://www.dailylivestockreport.com/default.aspx#monthly_reports and they say that live cattle should only increase slightly on the next 12 months !
I have no idea about any correlation between corn and alfalfa. About the only thing I do know about alfalfa is people can't eat it. It grows on areas that corn doesn't do well on. Once its high it's just mowed and let to grow again. After it's mowed a few times it starts to get sparse, at that point farmers let the cattle graze till it's gone. As for the number of finished Cattle to market? That was number one question I asked everyone I could on my annual trip around the beef cattle biz. Right now every Feedlot visited is running at about 70 to 75% of capacity despite the fact that most producers are marketing about everything they can with the high prices on the feeders. It seems to be very difficult to know just where we are and where we're going in the current cattle cycle. All I can say is that it looks like we won't see much if any increases in the inventory any time soon. I didn't get any indication the producers are holding back on marketing heifers, and even if they were we wouldn't see the results for another 18 months or so.
What are the ratios that make the chart look like your PDF attachment (i.e. $ per cwt)? I'd like to track this on barchart. Great thread! It's like I'm not on ET but some fantasyland where people are nice to each other and present interesting trades!
I am still amazed by this negative margin for feedlots. I just get an idea on one possible explanation : the weight gain by head is much higher than the classic one. As corn is cheap and FC is expensive they keep FC much longer in feedlot so they can benefit from the high prices of LC. Do you have any idea of the current weight gain by head ? And how much it increases the rate between corn and live cattle ? Thankss