September 18, 2003

 

Market Advisor: Feeder Cattle Prices Rebound

By Tim Petry, Livestock Marketing Economist
NDSU Extension Service

Feeder cattle prices in mid-September at livestock auctions in the Northern Plains were averaging about $20 per hundredweight higher than last year. These are welcome prices to feeder cattle producers who sold cattle in last year’s depressed market.

USDA medium and large frame, No. 1 muscle thickness feeder steer prices at auctions in North and South Dakota , for the week ending Sept. 12, averaged $107.27 per hundredweight for 550-to 600-pound steers, $107.69 for 650- to 700-pound steers, and $101.80 for 750- to 800-pound steers. This year’s weekly sales volume recorded only 16,800 head sold compared to last year’s volume of 25,800.

The 2003 higher prices are due to sharply higher fed steer prices and lower corn prices, the two fundamental factors that affect feeder cattle prices the most. Furthermore, reduced supplies of feeder cattle are positively affecting prices.

Fed steer prices at Nebraska packing plants were in the mid-$60 per hundredweight last year compared to the high $80's in mid-September 2003.

Fed cattle prices have risen in the last year due to both positive supply and demand factors. On the supply side, fed steer and heifer market weights are averaging well below those of a year ago.

Average weights for fed cattle were 1,210 pounds for the week ending Sept. 12 compared to 1,272 pounds last year, a decline of 62 pounds per head!

Even though cattle slaughter is higher this year because of a more than 7 percent increase in beef and dairy cow slaughter, and feedlots aggressively marketing fed cattle; beef production will likely decline almost 2 percent this year due to the lighter weights.

No beef entered the United States from Canada in June through August because of the case of mad cow disease, and only a limited volume of whole muscle cuts from cattle under 30 months of age is now entering. Live cattle from Canada are still prohibited from entering the United States.

A multi-year drought in Australia has reduced cattle herds, which has caused a reduced level of beef imports to the United States this year.

So, both domestic and foreign beef supplies are lower than a year ago.

On the demand side, both domestic and export demand for beef are booming. The Dr. Atkins (sometimes spelled Adkins) high protein, low carbohydrate diet is very "trendy" on the East and West Coasts. The U.S. consumers’ apparent preference for beef was quite evident over the Labor Day holiday when large amounts of beef moved at record high wholesale prices.

Strong export demand for U.S. beef can be attributed to both the United States gaining some of Canada’s market share, particularly in Pacific Rim countries, and the declining value of the U.S. dollar. For example, the Mexican peso has increased about 10 percent relative to the U.S. dollar this year, which sparked beef exports to that country.

In spite of relatively dry conditions again this year in the Western Corn Belt, corn prices have not increased like they did a year ago. December corn futures prices had risen to about $2.90 per bushel last year compared to $2.25 in mid-September this year. A general rule of thumb is that each 10 cent per bushel change in corn prices causes 550-600 pound feeder steer prices to change about $1 per hundredweight in the opposite direction. So, corn prices are adding support to feeder cattle prices.

Feeder cattle supplies will be lower this year. The U.S. beef cow herd has declined for seven consecutive years, because of relatively dry conditions in the Western cattle-producing region. Currently, about 40 percent of the beef cow inventory is within the area experiencing moderate to intense drought conditions.

Beef cow numbers were down 35,000 head from last year in North Dakota, 49,000 in Montana, 106,000 in South Dakota, and 109,000 in Wyoming; so Northern Plains feeder cattle supplies will be down accordingly. Other areas of the country saw expansion in cow numbers, but cow numbers were still down a total of 171,000 head in the United States.

Smaller feeder cattle supplies mean there will be excess feedlot capacity in the United States. That coupled with the fact that feedlots have been generating profits in the last several months means they will be aggressive bidders for feeder cattle.

The questions most livestock producers are asking: How much higher will prices go and how long will they last? History shows that seasonal weakness in 400- to 600-pound feeder calves usually occurs in October and November, when calves are weaned and peak marketings occur. That seasonal weakness will probably occur this year as well, but positive fundamentals should keep prices significantly higher than last year.

The same weight, grade, and sex of feeder cattle sold this year at the same time as last year should average $15 to $20 higher. In the longer term, the highest prices in a cycle usually occur when substantial herd rebuilding takes place and heifer calves are held for breeding purposes instead of going into feedlots. That time period is still ahead, but substantial precipitation in the Plains and West will have to occur first.

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