North Dakota State University -- NDSU Agriculture Communication
7 Morrill Hall, Fargo ND, 58105-5655, Tel: 701-231-7881, Fax: 701-231-7044
agcomm@ndsuext.nodak.edu

September 19, 2002

Market Advisor: Feeder Cattle Price Situation Update

By Tim Petry, Livestock Economist
NDSU Extension Service

Current feeder cattle prices are substantially below last year’s prices. Two obvious questions arise from these prices. First, why are feeder cattle prices below last year’s when cattle numbers are declining? Second, why are 550-600 pound feeder cattle relatively weaker than their lighter-weight and heavier-weight counterparts?

USDA medium- and large-frame, number one muscle thickness feeder steer prices in North and South Dakota for the week ending Sept. 13, averaged $104 per hundredweight for 350-400 pound steers, $86 for 550-600 pounds, and $83 for 750-800 pounds. Prices for 550-600 pound steers are down about $15 per hundredweight from 2001, with the lighter weight and heavier weight steers down about $10 per hundredweight from a year ago.

Two major reasons why feeder cattle prices are lower than last year are rising feed costs and weak fed steer prices. A general rule of thumb is that each 10 cent increase in corn prices causes 550-600 pound steer prices to decline about $1 per hundredweight. Consequently, 750-800 pound steers typically decline 50 to 75 cents per hundredweight with each 10 cent increase in corn prices.

Abnormally dry weather in much of the Corn Belt this summer caused December corn futures prices to increase from $2.20 per bushel in April to $2.90 per bushel in early September. A cattle feeder was recently quoted as saying that he could feed $4-per-bushel corn to cattle, but the producers he purchases feeder cattle from sure wouldn’t like what he could pay for them.

Reports out of western North Dakota and South Dakota indicate that corn prices are $1 per bushel higher than last spring.

Another rule-of-thumb is that each $1 per hundredweight decline in fed steer prices causes feeder cattle prices to decline by $1.50 per hundredweight. Fed steer prices are about $5 per hundredweight lower than last year because of high levels of beef production and large supplies of competing meats. U.S. beef production has surged to new record levels this quarter (July through September), exceeding 7 billion pounds for the first time. Much of the increase has been caused by increased fed steer weights.

So, about $7-8 per hundredweight of the decline in 550-600 pound steers is due to lower fed steer prices and the other $7-8 is due to higher feed costs.

Why are 550-600 lb. feeder cattle prices relatively weak? Winter wheat pastures in Oklahoma and Texas are in the best condition that they have been for several years. Winter wheat grazers are actively bidding for the lightweight feeder calves that are being sold early from the drought-plagued northern plains states. The cost of gain for grazing winter wheat is much lower than for feeding the higher priced feed grains, so they can pay more for feeder cattle.

Heavier-weight, yearling feeder cattle are in good demand because feedlots prefer to purchase heavier cattle when feed grain prices are high. Also, the supply of heavy-weight feeder cattle is down because yearlings were forced from summer pastures early because of drought conditions in many cattle-producing states.

Prices for 550-600 pound feeder cattle typically peak in March and April and decline this time of the year to reach a seasonal low in October and November when many are weaned and marketed. Prices for 750-800 pound feeder cattle are typically lowest in April when many yearlings are sold and increase until the end of the year.

What’s ahead for feeder cattle prices? Two positive developments occurred last week (Sept. 9-13). The USDA Crop Production report released on Sept. 12 did not reduce the corn crop as much as some expected. By the end of the week, December corn futures prices had dropped 16 cents per bushel. However, there is still much uncertainty as to what the final corn crop will be, and corn prices will likely stay much higher than last year. Feeder cattle producers should keep a close eye on the corn market.

The other development was that fed steer prices increased about $2 per hundredweight from $64 to $66. Fed steer prices typically increase this time of the year after reaching seasonal lows in midsummer. Lower placements of cattle on feed during the last four months should mean lower numbers available as we move into the later fall and winter. Prices are currently projected to average in the mid to upper $60s, moving to $70 per hundredweight. by year’s end.

The heavy seasonal marketing of 500-600 pound feeder cattle should be over by mid to late October this year due to dry conditions and earlier-than-normal weaning. Prices for steers are likely to average in the mid 80s with seasonal strength coming in November and December. Assuming a return to more "normal" weather conditions next year, and with beef production projected to decline by more than two percent, 550-pound steer calves could be in the mid to high 90s next fall.

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Source: Tim Petry, (701) 231-7469, tpetry@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu