You know that old saying about a gift horse and its mouth…this is no time to be checking the teeth on current feeder cattle markets. Feeder cattle markets have stayed stronger than expected this fall and offer a number of opportunities for all types of cattle producers. Calf prices have dropped very little this fall from summer levels…much less than the normal seasonal decline. Oklahoma calf prices this October are about 27 percent higher than this time last year. Cow-calf producers are selling weaned calves for $150 to $200 per head more than last year.
Heavy feeder cattle prices have not declined seasonally rather they have increased this fall. Seven-weight steers are up about six percent in October from August and are 25 percent higher than last year. An increase in heavy feeder price relative to stocker price increases the value of gain and is a stocker signal to put more weight on cattle in the country. For example, adding 250 pounds to a 500 pound steer currently has a value of gain of about $1.35 per pound at current prices. Feedlots are bidding heavy feeders higher and that increases the signal for stockers to add weight to cattle prior to feedlot placement.
Of course, current value of gain is only the buy signal and does not include the market risk between now and when the 750 pound steer in the above example will be sold. However, Feeder Cattle futures have been remarkably strong and currently offer an opportunity to lock in good margins for feeders sold in the March to May time period. The 750 pound steer will likely have a breakeven of $140-$145/cwt in March, depending on gain and costs. March Feeder futures at the time of writing this article were about $153/cwt. suggesting a rare margin opportunity for winter grazing. Stocker producers, and cow-calf producers with potential to retain weaned calves as stockers, should pencil out the opportunities depending on beginning weight and expected timing and weight of later sales. While cash market fundamentals are solid, spring Feeder futures are arguably overpriced and subject to correction at any time. The best opportunities may be fleeting!
Earlier in the fall, feedlots were losing some money and appeared to be paying too much for feeder cattle and thus jeopardizing feedlot margins for the coming months. However, cash fed cattle prices have improved recently, increasing current margins. Cost of gain is expected to stay very favorable for the foreseeable future. Moreover, Live Cattle futures prices have pushed higher recently to levels that come close to supporting current feeder prices for cattle finishing through next April. As with Feeder futures, the Live Cattle futures pricing opportunity may be short-lived.
Strong demand is what makes all of this possible. Boxed beef prices have recovered about $10/cwt. from the early fall lows. Retail beef prices are holding close to year ago levels despite a four percent increase in beef production in 2017. Demand is strong in both domestic and international markets, with year to date exports up over 14 percent. Strong demand is the key to allowing all sectors of the industry to have decent margins simultaneously and will be the key as beef production continues to grow in 2018.