Feeder Cattle Cash Market Price Volatility Diminishes
By the numbers, cattle producers with summer stockers and cow-calf operations should be experiencing a bit less stress about the market this year. Yearling steer prices (750- to 800-pound at Oklahoma City) averaged $145.13 per cwt. during the first six months of the year, up from 138.68 over the same months in 2017. The same comparison for steer calves showed this year’s average price for the first six months at $176.98 per cwt. compared to $167.37 over the comparable span last year.
The increase in value was achieved while price swings in the market have subsided. The spread between the low and high prices during the first 26 weeks of 2018 was $17.77 per cwt. for yearling steers. Last year, the swing in prices from the high to the low for the same weeks was $34.82.
Analysis of annual yearling price volatility going back to 1992 shows that price swings this year are on track to be the smallest since 2012. Managing price swings is a challenge in the process of marketing cattle. Based on monthly average prices, annual price swings from 1992-2002 never topped $20 per cwt. Since 2012, annual price swings have been greater than $30 per cwt. every year. In 2011 and 2012, the high-to-low price swings were $19.49 and $18.34, respectively. Annual price swings greater than $70.00 a year were encountered in 2014 and 2015. During the last 25 years, the most frequent annual price range was $15-$20 (6 years). So far this year, the swing in monthly average prices has been $9.39. The difference between in the magnitude of price swings based on weekly versus monthly data makes a statement about how much price volatility has been experienced within some of the months, even though price volatility has been less than in past years.
Yearling steer prices at Oklahoma City (750- to 800-pound, medium and large frame #1) in the latest week averaged $151.67 per cwt. The low monthly average price so far this year was $139.90. Given the price volatility that has been seen in the market in the first half of the year, an annual price range of $15-$20 has the highest probability, which infers that the chances for prices above $160 would not be a strong bet. It is also worth noting that the high monthly average price so far this year is only $149.29, making the current cash price look very good versus the monthly average to-date.
With the new corn crop looking good, feeder prices have responded well in anticipation of lower feed costs. Feedlots have been aggressively bidding for cattle. Cash prices out of Western Kansas which had been dogging (negative basis) the August feeder cattle contract for weeks, suddenly flipped on the week of the acreage report. In the 4th year of expansion, aggressive cash bidders are a good sign for the industry even if it comes with some added volatility in the second half of the year.
