Current feeder cattle prices suggest a strong stocker signal and a potential retained ownership signal for cow/calf producers, at least through the stocker phase, said a prominent university Extension livestock marketing specialist.
Derrell Peel of Oklahoma State University penned a market outlook that said retained ownership of calves into the feedlot also may have potential that should be evaluated separately.
Through July and August, prices for heavy feeder cattle have been stronger than those of lighter weight feeder cattle, Peel said. This graph of USDA Agricultural Marketing Service data shows the price movements of 700- to 800-pound feeder steers in the Southern Plains.
ON-FEED REPORT SHOWS BRISK FEEDLOT ACTION
The August USDA Cattle-On-Feed report shows an Aug. 1 on-feed inventory of 10.165 million head, 101.6% of last year. July sales to packers were 99.3% of a year ago while placements on feed were 101.6% of last year. With two fewer business days this year, these numbers suggest a continued brisk pace of placements and marketings.
The desire to increase feedlot turnover means feedlots continue to demonstrate a preference for heavy feeder cattle, Peel said.
Since placements began increasing in February, placements of feeders weighing more than 700 pounds have increased more than 11% year over year, while placements of cattle weighing less than 600 pounds are down nearly 6% compared to the same six months last year, he said.
Feedlots generally would rather feed bigger, older feeder cattle, Peel said. With continued heavy discounts on deferred live cattle futures, feedlots are less interested in buying lighter weight feeders and take the risk of owning them for a longer period of time.
That is true despite the fact that feedlot cost of gain is decreasing with abundant grain supplies and prospects for record grain crops for the coming year, he said. Wheat prices and large supplies of relatively poor quality old crop wheat make wheat a ration alternative and the only reason it is not being used more is that corn is cheap and getting cheaper.
FEEDLOT HAVE CHOICES
Feedlots are constantly deciding whether to buy heavy feeder cattle or to buy lighter feeders and put the pounds on in the feedlot. Lower feedlot cost of gain means feedlots can afford to pay more for lighter weight feeders, but a growing supply of feeder cattle means feedlots don’t have to buy light weight placements as long as an ample supply of heavy feeder is available.
This is a big part of the observed increase in heavy feeder cattle prices this summer, Peel said. For steers, this is revealed as smaller price rollback across weights ranging from about 500 to 750 pounds. The smaller rollback results in an increase in the value of gain for the middle weight ranges of feeder cattle.
In other words, the relatively smaller feedlot demand for lighter weight feeder cattle translates into a market signal to put that weight on in the country, he said. Generally good forage conditions mean it is more efficient to put extra weight on cattle in the country, especially in the face of growing cattle supplies, despite falling grain prices.
CASH CATTLE MARKETS QUIET
Cash cattle markets Monday were quiet after trading Wednesday at $118 per cwt on a live basis and at $185 to $187 dressed.
The USDA’s choice cutout Monday was $1.07 per cwt higher at $201.14, while select was up $0.27 at $193.87. The choice/select spread widened to $7.27 from $6.47 with 83 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Friday was $148.34 per cwt, up $0.27. This compares with the Aug settlement Monday of $147.02, up $0.95.