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May 5, 2005 Market Advisor: Feeder Cattle Prices Reflect Strong Demand
Feeder cattle prices in April at northern Plains livestock auction markets averaged 15 percent to 20 percent higher than a year ago. Lightweight, 500- to 600-pound feeder calves averaged more than $20 per hundredweight higher than last year, with the heavier weight 700- to 800-pound feeder cattle averaging more than $15 higher. Prices for thin cattle suitable for summer grazing and replacement-quality heifers were especially strong. Prices are higher than last year because of reduced supplies and strong demand. The 2004 calf crop was 1 percent lower than the previous year and the ninth consecutive annual decline in calf crop numbers. It was the lowest recorded calf crop since 1951. The USDA-NASS cattle-on-feed report released April 22 indicated that cattle feeders placed 3 percent fewer cattle on feed in March than the previous year and 13 percent below 2003. The strong demand is coming from feedlots, summer grazers and replacement-heifer buyers. Cyclically smaller feeder cattle supplies mean there is excess feedlot capacity. That, coupled with a record corn crop and lower corn prices, has caused feedlots to be aggressive bidders for cattle to fill pen space. Although parts of the northern Plains and Pacific Northwest still are suffering from dry conditions, other cattle producing areas of the country have received good spring rains. Much improved grazing prospects, compared with the last several years, are spurring the demand for cattle to place on grass. Relatively strong prices for grass cattle, along with increasing pasture rental rates, mean that margins for summer grazing are narrowing. Producers considering a summer grazing program may want to visit my Web site at www.ag.ndsu.nodak.edu/aginfo/lsmkt/livestock.htm for a summer grazing budget spreadsheet that will compute potential costs and returns. Beef cowherd rebuilding has started in parts of the country that have returned to normal moisture conditions. On Jan. 1, beef heifers kept for replacements were up 4 percent. The demand for replacement-quality heifers has continued to be strong this spring. Heifers purchased for replacement purposes further reduce the supply of feeder cattle for feedlots and summer grazers. The USDA cattle on feed report indicated there were 6 percent fewer heifers on feed on April 1 compared with last year. Northern Plains livestock auction market reports in April indicated replacement quality 700- to 900-pound heifers were bringing $5 to $10 per hundredweight premiums, with many selling from $800 to $900 per head. The normal seasonal price pattern for lightweight calves shows a peak in April and May, with a moderate decline into summer and lows reached in October and November, when heavy fall marketing occurs. A normal seasonal pattern is expected again this year, but a number of important fundamental factors will influence prices between now and the fall marketing season. Corn Belt weather this summer will be important to feeder calf prices. A 10-cent-per-bushel change in corn prices can cause a $1-per-hundredweight change in the opposite direction in calf prices. A record corn crop last year caused relatively low corn prices. An increasing demand for nonfeed-use corn in the United States means that another very good corn crop will be necessary to maintain calf prices. Fed-cattle prices also will be important to watch. Questions remain whether live cattle will be allowed into the United States from Canada, if domestic demand for beef will continue to flourish and when important Asian markets may reopen to U.S. beef. Another large corn crop and favorable fed-cattle prices would support feeder-calf prices with seasonal declines to levels similar to last fall. A smaller corn crop and lower fed-cattle prices could mean lower calf prices. Cattle prices likely will be volatile as weather reports and international beef trade announcements are issued. It probably will be another interesting summer as cattle price fundamentals unfold. ### Source:
Tim Petry, (701) 231-7469, tpetry@ndsuext.nodak.edu |
Market Advisor: |
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North Dakota State University |
