Cattle prices have slid for the last year and a half, creating a tightening feeder cattle markets has seen little discussion, said Brian Williams, assistant extension professor of the Department of Agricultural Economics at Mississippi State University.
Writing for the Livestock Marketing Information Center’s In the Cattle Markets, Williams said, “In January of 2015, when markets were near their peak, we had a difference of nearly $100 per cwt between cattle weighing 400 to 500 pounds and cattle weighing 800 to 900 pounds. Last week that difference narrowed to about $20 per cwt.
“Even when factoring in the lower prices in general, we have gone from a 50% price differential in early 2015 to an 18% price differential last week when compared to nearby feeder futures prices,” he said.
CLEAR SIGNALS FOR PRODUCERS
The narrowing price spread is sending a clear economic signal for feeder cattle and calves to be kept out of the feedlot and on grass, corn stalks and/or wheat pasture, Williams said. When combined with favorable conditions across much of the Plains, this presents a tremendous opportunity for cow-calf producers as well as for stocker cattle producers.
It may have been ideal for cow-calf producers to have sold their calves back in late August or early September before prices tumbled, but many were not able to take advantage.
The next best alternative may be to hedge them to manage downside price risk and hold the cattle through the winter to take advantage of the narrowing price slide, he said.
The value of gain for a 550-pound calf that puts on 200 pounds over the winter is just under $220 a head, assuming prices remain constant, Williams said. Further, the decline in value of the original 550 pounds of calf when priced as a part of the 750-pound animal is just $32.00 per head. This compares to a value of gain of just under $253 a head using prices from a year ago when markets were much higher, but the value of the original 550 pounds of calf would have declined by $134.00 when priced as part of a 750-pound animal.
Assuming available resources, producers should be able to add that 200 pounds for much less than $220, he said. This should especially be true of wheat stocker operations in the southern plains, again assuming the price slide doesn’t suddenly get steeper.
BROADER IMPLICATIONS
When thinking about the broader implication of the narrowing price slide on the markets, the primary effect will be on feedlot placement weights and timing, Williams said.
First, the trend of heavier placement weights is likely to continue. Second, it could provide a slight short-term boost to feeder cattle markets as feedlots try to draw the calves away from the farm.
That likely is one of the primary drivers of the current temporary bull market, but as Stephen Koontz said in last week’s ICM article, the fundamentals are still bearish in the long term, making risk management a major key for anyone thinking of buying/retaining cattle through the winter.
CASH CATTLE MARKETS QUIET
Cash cattle markets Wednesday were quiet. Cattle in the Superior Auction ranged from $103 to $104.25 per cwt. Cattle sold last week at mostly $105 live and $162 to $164 dressed.
The USDA’s choice cutout Wednesday was $0.79 per cwt lower at $184.55, while select was off $1.49 at $170.45. The choice/select spread widened to $14.10 from $13.40 with 115 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Tuesday was $126.24 per cwt, down $0.22. This compares with Wednesday’s Nov settlement at $124.55, up $0.15.