Derrell Peel: Fall Feeder Cattle Market Dynamics
Feeder cattle markets have displayed very dynamic movements this fall that have implications for cow-calf and stocker producers. Figure 1 shows how feeder cattle prices have evolved this fall using price-weight lines for three different weeks in August, October and November.
The green line in the chart shows the Oklahoma steer price by weight in August with a typical pattern of prices mostly declining as weight increases. Feeder prices declined seasonally, as expected, into October as shown in the red line in Figure 1. As often happens in the fall, prices for steers from 575 to 725 pounds decreased more than lighter and heavier animals. The result is a price line that becomes bent with sharper declines in prices (a bigger price rollback) for animals under 575 pounds and a very flat price structure with little change in prices for steers from 575 to 875 pounds (red line, Figure 1).
After posting lows during the winter storm in late October, steer prices for calves and stockers increased sharply in November though prices for steers over 600 pounds have changed little as shown in the blue line in Figure 1. The result is a sharper bend in the price-weight line, with an even steeper price rollback for steers up to 600 pounds.
For cow-calf producers selling calves at weaning, price level is the most important determinant of revenue. The price of 500-pound steers dropped from $165.36/cwt. in August to $154.06/cwt. in October before bouncing back to $166.97/cwt in November. The steep rollback most recently does affect the value of limited weight gain for calves. For example, the most recent prices mean that the value of an additional 50 pounds on a 500-pound steer is about $0.50/lb. For producers holding calves after weaning, the low value of gain must be balanced against the value of preconditioning programs and extra weaning time before sale. The implications of current market conditions depends on the current weight of animals and the amount of additional weight added to animals prior to sale.
Changes in the price-weight line have different impacts on stocker margins as reflected in the value of gain. Using a stocker gain of 250 pounds from 500 to 750 pounds, the value of gain in August was $1.02/lb. In October, the value of gain was slightly higher at $1.05/lb. based on lower prices for both 500 and 750-pound steers. In November, the higher prices for the lightweight animals resulted in a lower value of gain of $0.74/lb. Of course, a 500-pound stocker purchased now will not reach 750 pounds for some time. However, March feeder futures price was $134.48 recently and with an expected early March basis of $1.69/cwt for 750-pound steers in Oklahoma suggests a final price of $136.17/cwt., close to the current cash price of $136.03/cwt.
The important point is that feeder markets have been very dynamic and it means that both cow-calf and stocker producers must constantly evaluate changing market conditions. Feeder markets are reflecting a mix of influences including seasonal supplies of calves, wheat pasture forage conditions, higher corn prices and volatility in futures markets.
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