June 26, 2003

 

Market Advisor: Feeder Cattle Price Outlook

By Tim Petry, Livestock Marketing Economist
NDSU Extension Service

Feeder cattle prices in the Northern Plains are currently about $10 per hundredweight higher than last year. However, very few feeder cattle are available at this time of the year and auction market receipts are low. A look at fundamental factors that will affect prices for this fall’s peak marketing run may be warranted at this time.

A key fundamental factor that will affect feeder cattle prices is weather. Corn Belt weather, the size of the corn crop, and resulting corn prices will be especially critical. A general rule of thumb is that each 10 cent increase in corn prices causes 500-600 pound steer prices to decline about $1 per hundredweight.

Last summer’s abnormally dry weather in parts of the Corn Belt caused December, 2002, corn futures prices to increase from $2.20 per bushel in June to $2.90 per bushel in early September. Feeder calf prices were adversely affected by about $7 per hundredweight by this increase in corn prices.

December, 2003, corn futures during the last week in June, 2003, were trading around $2.35 per bushel and have declined from earlier spring levels. Corn crop moisture conditions are looking better than last year but continued rain will be necessary to assure a good crop.

Moisture conditions in the cow-calf producing states will also be critical in affecting the amount of heifer calves that will be retained for breeding purposes. Retaining heifers reduces the supply of feeder cattle available for feedlots which is positive for prices.

The US beef cow herd is down about 2.4 million head from the previous cyclical high in 1996, and beef cow numbers declined 171 thousand head last year alone because of drought in approximately 40 percent of the major cow-calf producing region. That means that this year’s calf crop will be lower than last year, and the lowest since 1991. Moisture conditions have improved in the Southern and Northern Plains, but much of the West, where drought has persisted for several years, remains dry. There will be considerable interest in retaining heifers in areas where moisture conditions have improved.

Both the moisture and BSE (mad cow) situation in Canada could impact feeder cattle prices. Drought in Northwest Canada’s cattle feeding region last year reduced feed supplies and caused feedlots to place fewer feeder cattle on feed. Therefore, more feeder cattle from Canada were sent to the US for feeding. In the fall of 2001, some feeder cattle from the Northern Plains were exported to Canada for feeding. Moisture conditions there are better now than last year at this time.

The US has banned the importation of cattle from Canada due to the confirmed case of BSE found in a cow in Alberta. When that ban will be lifted was not known when this article was written.

Fed cattle prices also have a direct impact on feeder cattle prices. During the fourth quarter of 2002, fed cattle averaged close to $70 per hundredweight. Projections for the fourth quarter, 2003 are for prices to average from $74 to $78 per hundredweight, four to eight dollars higher than last year.

The latest USDA Cattle on Feed report released on June 20 indicated four percent fewer cattle on feed on June 1 than last year. This is a result of fewer beef cows and lower calf crops over the past few years. Marketings of fed cattle during May were up three percent, which reflects that feedlots are current and market weights are lower than last year. Since feedlots have been making money on cattle fed the last several months, they may be aggressive buyers for the reduced supply of feeder cattle available this fall.

Prices for feeder calves are typically at seasonal lows in the fourth quarter of the year, because that is when many are sold. Fourth quarter prices for 500-600 pound steers in the Northern Plains averaged $96 per hundredweight in 2000, $93 in 2001, and $88 in 2002. Prices in 2003 should reverse that downward trend. If favorable fundamental conditions continue, prices should average about $10 per hundredweight higher than last year.

Even though prices look better at this time, producers should keep in mind that unpredictable factors can affect the market at any time. Risk averse producers who are concerned about adverse weather, disease outbreaks, or other negative price factors may consider using put options to establish floor prices on part or all of this year’s production.

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Source: Tim Petry, (701) 231-7469, tpetry@ndsuext.nodak.edu
Editor: Rich Mattern, (701) 231-6136, richard.mattern@ndsu.nodak.edu