Shrinking cattle inventories lead to a wide range of effects on the multi-sectored cattle industry, including rising feeder prices and changes in price relationships that affect economic incentives of the various cattle production sectors.
Derrell Peel, Oklahoma State University Extension livestock marketing specialist, said in a letter called In The Cattle Markets that as feeder cattle prices have risen, the prices for lightweight animals have increased faster and more than heavy feeder cattle. This has particular implications for stocker producers.
INDUSTRY MULTI-LAYERED
The cattle industry includes several production sectors, with the cow-calf sector producing calves, and the feedlot sector ensuring cattle are finished, Peel said. In between, the stocker (or backgrounding) sector consists of many activities and arbitrage that serve several different functions for the cattle industry.
Stockers provide basic production value for the cattle industry, Peel said. Calves and lightweight cattle are grown to increase size and weight prior to feedlot placement.
Stocker production also helps balance forage and feed grain values, he said. Cheaper, forage-based gains help keep the cattle industry competitive.
When grains are expensive relative to forage, more weight can be put on cattle prior to feedlot placement, Peel said. But, when cattle numbers are limited, feedlots can place lighter feeder cattle to take advantage of the lower cost of gain.
Retained stocker production is an option for forage use when calf prices are relatively low and the value of added gain on stockers is relatively higher, he said. Stocker production also plays an important role in spreading cattle production seasonally and across years.
CURRENT SITUATION
The current market is characterized by tight feeder cattle supplies and relatively low feedlot cost of gain, Peel said. The role of the stocker industry gets squeezed in this environment.
On the one hand, high calf prices are encouraging herd rebuilding and increased calf production, he said. The market is indicating the highest and best use of forage is for calf production rather than stocker production.
On the other hand, low feedlot cost of gain and tight feeder supplies are encouraging feedlots to place animals sooner and at lighter weights, effectively bidding them away from stocker production, Peel said. Both influences are reflected in the wide spread in feeder prices from light to heavy, which means a large rollback and relatively low value of gain for stocker production.
Stocker production still will occur, but the opportunities will be fewer, and margins will be trickier, he said.
However, when heifer retention begins, feeder supplies will be squeezed further from a feedlot perspective, but many of the heifers will need a growing phase as part of their development for breeding and provide a stocker role.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $197.29 per cwt to $200.08, compared with last week’s range of $199.80 to $207.87 per cwt. FOB dressed steers, and heifers went for $312.39 per cwt to $313.95, compared with $313.22 to $319.42.
The USDA choice cutout Tuesday was up $0.94 per cwt at $314.87 while select was up $1.61 at $304.02. The choice/select spread narrowed to $11.52 from $11.52 with 100 loads of fabricated product and 20 loads of trimmings and grinds sold into the spot market.
The USDA-listed the weighted average wholesale price for fresh 90% lean beef was $381.16 per cwt, and 50% beef was $106.73.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.20 to $1.30 a bushel over the May corn contract, which settled at $4.51 1/2, down $0.04 3/4.
The CME Feeder Cattle Index for the seven days ended Monday was $278.75 per cwt, down $1.83. This compares with Tuesday’s Mar contract settlement of $273.85, down $0.17.