Futures Give Some Calf Retention Incentive

The CME futures market appears to be providing some incentives for producers to deliver cattle at later dates, said Elliott Dennis, livestock extension economist, at the University of Nebraska, in a Livestock Marketing Information Center release.

As of Oct. 25, there was about $2-3 per cwt of increase between contracts with Jan trading at $158.90 and Apr trading at $163.38, all of which were higher than the Oct ’21 contract of $155.78 and the feeder cattle cash index of $153.35 per cwt, Dennis said.




To determine if it’s worthwhile to retain calves or sell them, Dennis said to combine CME futures prices with historical price data to calculate the “value of gain.”  Then add current and expected feed prices to calculate the “cost of gain.”

Then, if the value of gain exceeds the cost of gain, it’s better to retain and feed.  If not, sell, unless there are unique factors that could alter the value of cost, such as premiums for his cattle or cheaper feed sources.




Weakening demand for beef and crop/forage conditions are two factors that could affect the retention decision negatively, he said.  Strong retail and export beef demand has supported prices for livestock even through distribution disruptions.

However, beef exports have started to slow from their record-setting pace, and there are few advanced beef purchases into 2022, Dennis said.  This is one indication export markets may have started to move away from higher-priced US beef.

In the domestic market, advanced purchases of wholesale beef from retail stores also have started to slow, indicating domestic retailers are more willing to live in the cash market and adjust featured products in the short run.  He said, this may be one of the first signs that beef prices are just too high.

High crop prices and decreased forage conditions have been affecting cow/calf producers and feedlots this year, Dennis said.  Harvest is nearing completion, and traders are looking to see actual yields and the feedlot’s cost of feed.

This will have a large effect on what feedlots will be willing to pay for feeder cattle and at what weight they desire to place feeder cattle, he said.

Forage conditions are a persistent concern for cow/calf producers, Dennis said.  Some feeding regions are coming off two years of drought, and many producers have already sold feeder cattle and parts of the cowherd.

National weather forecasts said the probability of another La Nina event this year was pegged at 90%, he said, suggesting weather will be colder in the Midwest and drier in the South and Southwest.  Forage prices will rise.




The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $131.81 to $133.75 per cwt, compared with last week’s range of $129.52 to $132.00.  FOB dressed steers and heifers went for $205.64 to $208.55 per cwt, versus $197.79 to $203.85.

The USDA choice cutout Thursday was down $2.31 per cwt at $276.16, while select was off $0.90 at $263.16.  The choice/select spread narrowed to $13.00 from $14.41 with 142 loads of fabricated product and 51 loads of trimmings and grinds sold into the spot market.

The USDA reported Thursday that basis bids for corn from livestock feeding operations in the Southern Plains were unchanged at $1.30 to $1.40 a bushel over the Dec futures and for southwest Kansas were unchanged at $0.40 over Dec, which settled at $5.73 a bushel, down $0.02 1/4.

The CME Feeder Cattle Index for the seven days ended Wednesday was $155.46 per cwt down $0.02.  This compares with Thursday’s Nov contract settlement of $155.92 per cwt, down $0.15.