October 14, 2004
Market Advisor: Fall Feeder Calf Price Update
The fall marketing run of feeder calves has started as evidenced by lighter weight calves being sold at livestock auction markets across the northern plains.
During the first week in September, about 10 percent of feeder cattle sold at North and South Dakota auctions weighed less than 600 pounds. By the first week in October, nearly 70 percent of feeder cattle receipts showed calves weighed less than 600 pounds, with some markets reporting as high as 85 percent.
Mid-October through the week before Thanksgiving is typically the heaviest marketing period for calves. Volume of sales then declines until Christmas, with very few sold between Christmas and New Year’s Day. Marketing again increases in January and February as backgrounded cattle are marketed.
Prices for all feeder cattle are averaging above last year’s levels, with the lightest weights bringing the highest prices above last year.
The price structure will be reversed this year compared with last year. In 2003, fed-cattle prices were increasing rapidly at this time, fueled by extremely short supplies of market-ready, choice grade cattle and strong consumer beef demand. However, lighter weight feeder-cattle prices did not increase at the same rate.
Interestingly, in mid-October 2003, 550-pound feeder steers in North Dakota and choice fed steers in Nebraska were both averaging between $105 and $110 per hundredweight.
That will not be the case in 2004!
This year, prices will have a more normal spread, with the lightest weight feeder calves selling the most above last year and the heavier weights selling closer to last year’s levels. Fed cattle, by comparison, will sell measurably less than they did a year ago during the fourth quarter.
Currently, 550- to 600-pound steers are averaging about $115 to $125 per hundredweight at North and South Dakota auctions, about $15 higher than last year. The heavier 750- to 800- pound steers are averaging $110 to $115, which is about $10 higher than 2003 levels. At the same time, fed cattle are selling for $82 to $84, approximately $12 less than a year ago.
Feeder-cattle prices are higher due to reduced supplies and strong demand. Fed-cattle prices are lower because of sharply reduced beef exports, particularly to Southeast Asian countries; increasing slaughter weights, which result in more choice-grade cattle; and increasing supplies of competing meats such as pork and chicken.
Lower supplies of feeder cattle are the end result of eight straight years of declining beef cow numbers because of drought in much of the Western cattle producing area.
The U.S. calf crop for 2004 is estimated at 37.7 million head, down 200,000 from last year. The calf crop will be more than 2.5 million head fewer than in 1995, when the last cyclical peak calf crop occured and the lowest since 1951.
Historically low feeder-cattle supplies means there will be excess feedlot capacity. That, coupled with the fact that feedlots have been generating profits during the last year, means feedlot operators will be aggressive bidders for feeder cattle.
Furthermore, herd rebuilding has started in much of the Southern and Eastern cattle producing regions. More heifer calves will be held off the market for replacement, which will lead to even shorter supplies of feeder cattle available for feedlots.
A record corn crop of more than 11 billion bushels will also support feeder cattle prices this fall. Higher drying costs because of higher energy prices will encourage feedlots to store high-moisture corn. The outlet for high moisture corn is cattle feed, which will stimulate demand for feeder cattle.
Some continued seasonal weakness can still be expected as heavy calf runs come to market in the next two months. However, prices should average $10 per hundredweight higher than last year.
Feeder-cattle marketers should also be reminded that different lots of the same grade and weight can have a relatively wide range in price, depending on the many market factors that can affect price.
It is not uncommon for prices of 550- to 600-pound, medium- and large-frame No.1 steers to differ from $5 to $10 on the same sale day. For example, calves that have received pre-weaning shots are selling particularly well right now.
Producers are encouraged to contact their local auction market several weeks prior to selling for tips on management and marketing practices that can help assure that calves bring the best possible price.