The great cattle market rally of early 2011 has pushed stocker and feeder prices to lofty highs. Veteran stocker operators, however, know to expect summer lows after those spring highs. But just how much of a decline should you expect?
Historical data suggests a 12 percent to 13 percent decline in feeder cattle prices from the spring top to a seasonal summer low. Recent years, however, buck those historical trends and leave stocker operators with few clues about market direction.
According to data compiled by Drovers/CattleNetwork from our monthly 50-market auction summary, yearling steers weighing 600 to 700 pounds saw a decline in prices from spring highs to summer lows in seven of the past 10 years. Three of the past 10 years produced gains from spring to summer.
Over the past decade, prices for yearling steers declined an average of just 4.5 percent from spring highs to summer lows. The years showing those price declines were 2001, 2002, 2005, 2006, 2007, 2009 and 2010.
The biggest decline was found in 2002, when prices for 600 to 700 pound steers declined from $84.89 in March, to $76.66 by July, a decline of 10 percent. In 20052, an 8.5 percent drop was seen from May prices of $119.81 to $109.75 by August. A 5.4 percent drop was recorded in 2009 when prices declined from $103.57 in May to $98.01 in July.
Gains were made against seasonal trends in 2003, 2004 and 2008. In 2003 and 2008, gains from March to July were just 1.6 percent and 1.0 percent, respectively. However, 2004 produced a 14 percent price increase from April's $98.22 average to July's $114.07.
Seasonal trends and historical data mean little compared to the market fundamentals of supply and demand. And this year's market appears to remain extremely volatile with expanding drought in the Southern Plains and rising corn prices. Both could work to pressure yearling feeder cattle prices well below seasonal declines.
Yet, supplies of feedyard replacement cattle are historically tight, which will continue to lend at least some support to the feeder market.
Using the last decade a guide, we applied the largest decline from spring highs to summer lows in Drovers/CattleNetwork's data to this year's prices. The largest decline was 10 percent, and this year's March average price for 600 to 700 pound yearling steers was $132.91. A 10 percent decline would put prices for those cattle this summer around $119.70 per hundredweight.
Many factors, of course, make this year's market extremely volatile, and conditions can change dramatically in a short period of time.