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April 29, 2004 Market Advisor: What Is Driving Feeder Cattle Prices?
Feeder cattle prices in April at North and South Dakota livestock auctions averaged about $15 per hundredweight higher than last year. Lightweight, 500-600 pound feeder cattle averaged close to $17 per hundredweight higher with their heavyweight, 700-800 pound counterparts averaging $13 higher. Lightweight feeder steers in April averaged $4 per hundredweight higher than pre-BSE, December levels; but heavyweights averaged $7 less than December. Prices are higher than last year because of reduced supplies and strong demand. U.S. beef cow numbers have declined for eight consecutive years, and are down 2.5 million head since 1996. The supply of feeder cattle outside of feedlots on Jan. 1, 2004, was down four percent from a year earlier. The reduced supply was due to both a smaller calf crop and relatively heavy movement of feeder calves into feedlots during the fall of 2003. The USDA-NASS Cattle on Feed Report, released April 16, indicated cattle feeders placed only 1.8 million head of feeder cattle on feed during March compared to 2.03 million head last year, a year-to-year decline of 11 percent. On a weight category basis, only lightweight placements under 600 pounds were up, while the number of cattle placed in remaining categories was below levels a year ago. In particular, placement of heavyweight feeders over 800 pounds declined 26 percent from last year, due to short supplies of that market class. Strong demand is coming from feedlots, summer grazers, and replacement heifer buyers. Smaller feeder cattle supplies mean there is excess feedlot capacity in the United States, so feedlots have been aggressively bidding for cattle to fill pen space. Although much of the Northern Plains is still dry, other areas of the country have received nice spring rains. In those areas, the demand for lightweight feeder cattle for summer grazing is good. Relatively strong prices for grass cattle, along with increasing pasture rental rates, mean that margins for summer grazing are narrow. Producers considering a summer grazing program may want to visit my Web site (www.ag.ndsu.nodak.edu/aginfo/lsmkt/livestock.htm) where a summer grazing budget spreadsheet is available for computing potential costs and returns. The demand for replacement quality heifers at auctions in N.D. and S.D. has been good this spring. Heifers purchased for replacement purposes further reduce the supply of feeder cattle for feedlots and summer grazers. Most states in the Northern Plains have experienced dry conditions and declining beef cow numbers in the last several years. Current feeder cattle price levels are stimulating interest in rebuilding herds where moisture conditions permit. During April, replacement quality 700-900 pound heifers were receiving a $5 to $10 per hundredweight premium with many averaging $725 to $775 per head. The normal seasonal price pattern for lightweight calves shows a peak in prices in April due to short supplies and the demand for summer grazing. Prices typically decline during the summer and reach lows for the year in October and November when heavy marketing occurs. Last year prices actually increased contra-seasonally from spring to fall due to sharply higher fed cattle prices and predictions for a record corn crop. This year, a more normal seasonal price pattern is expected, but a number of important factors will influence prices between now and the fall marketing season. Corn Belt weather this summer will be critical to feeder calf prices. A $.10 per bushel change in corn prices typically causes a $1 per hundredweight change in the opposite direction in calf prices. Even with a record corn crop last year, corn prices have been increasing due to tight world stocks, good export demand and additional non-feed use in the United States. Weather conditions in the dry Western cattle producing region will also be important. Improved moisture conditions would likely spur herd rebuilding and keep heifer calves off the market. Fed cattle prices will be a fundamental factor to watch. Questions still remain about when live cattle will be allowed in from Canada, if domestic demand for beef will continue to flourish and when Asian markets will reopen to U.S. beef. Good moisture conditions and favorable fed cattle prices would support feeder calf prices with seasonal declines to levels similar to last fall. Poor weather and lower fed cattle prices would mean lower calf prices. Prices will likely be volatile as weather reports and international beef trade announcements are made. Stay tuned, it will be another interesting summer in the cattle business. ### Source: Tim
Petry, (701) 231-7469, tpetry@ndsuext.nodak.edu |
Market Advisor: |
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North Dakota State University |
