Things are getting better for cattle feedlots. The difference between what they pay for feeder cattle is declining, while the price they receive for fat cattle is increasing.
A graph of the price differences between 700- to 800-pound feeder steers in the Southern Plains and the price received for slaughter steers in the same area shows a steep decline from its record high three weeks ago.
However, the difference remains well above last year and the previous five-year average, which shows a seasonal decline from late July into mid-October. This seasonal decline occurs because annual weaning of spring calves takes place as pastures decline with the approach of winter. More calves come to market, and many of them will find a home in a feedlot somewhere.
The normal price decline also occurs because buyers are less inclined to purchase freshly weaned, bawling calves. Their stress level is higher, and many haven’t received their full compliment of necessary vaccinations. As a result, their consequent illness and death rate is higher.
However, this year, in the months leading up to early October’s break, the difference between feeder cattle and fed cattle prices began to widen in January. They started to follow last year’s lower trend in late February and early March as calves came off of wheat pasture.
But it became obvious quickly that there weren’t as many calves to be had as there were a year ago, and the price of feeder calves began to rise more steeply than that of fed cattle. In addition, the cost of feed declined as prospects for a record harvest this year grew with each weekly National Agricultural Statistics Service report of crop conditions.
Tight feeder cattle supplies and lower corn costs continue to rule the day, even continuing to widen the separation counter-seasonally into the early October peak.
Further declines in the feeder cattle/fed cattle spread appear likely in the short term, but the issues of tight feeder cattle and low corn costs continue to rule.
SLAUGHTER CATTLE PRICES HIT NEW HIGHS
Fed cattle prices last week set a record high of $169 to $170 per cwt on a live basis in the Southern Plains as competition heated up and orders for holiday cuts rolled in. At the same time, prices for Southern Plains slaughter cows are flattening seasonally as demand for lean beef for hamburger picks up and the number of cull cows coming to market declines.
Sources say further gains in fed cattle prices are projected, especially in the longer term, since supplies remain limited by a herd that has shrunk to a 63-year low and this year’s efforts to begin rebuilding.
However, the $170 price is showing itself to be a psychological barrier for futures and cash buyers. The Dec futures contract has recoiled from the $170 level three times in the last month, and technical traders would argue that last week’s gap on daily bar charts needs to be filled to give the market a better foundation from which to launch an attack on $170 resistance. This gap won’t be filled until Dec trades at or below the Oct. 17 high of $165.20.
BEEF CUTOUT CLIMBS IN THIN OFFERINGS
Wholesale beef prices climbed Monday, countering Friday’s decline, amid moderate demand and light packer offerings. Select product saw the most increase, narrowing the choice/select spread.
The USDA reported its choice cutout value at $249.20 per cwt, up $1.79 for the day. Select was reported at $235.99, up $3.28 from Friday.
However, cash sales were light with only 65 loads of fabricated product sold into the spot market.