Feeder Cattle Price Outlook
In last week’s Cattle & Corn Comments, we reviewed the rather disappointing fed cattle market trend thus far in 2013 and the outlook for the rest of the year. This week, we’ll examine the feeder cattle market. As a result of the lower-than-expected fed cattle prices and general strength in corn prices, feeder cattle prices have generally trended lower through the first half of the year and were lower than prices for the first half of 2012. In the combined South Dakota auction market, 500-599 lb feeder steer prices ranged from $152.00/cwt to $176.36/cwt. The average price from January through June was $163.90/cwt, more than $21/cwt lower than the same time period in 2012. Similarly, 700-799 lb feeder steer prices averaged $141.65/cwt, almost $15/cwt lower than a year ago. The larger drop in the lighter weight steer calf prices is an indicator of pressure on cattle feeders from high priced corn.
Cattle feedlots lost, on average, about $175/head for closeouts from January through June 2013. Those losses, spurred by higher corn prices and lower fed cattle prices, eventually led to pressure on feeder cattle prices by the end of the second quarter, despite relatively tight calf supplies. Looking ahead, stable to improving fed cattle prices and much lower new-crop corn prices should result in higher feeder cattle prices by the end of the year.
Based on futures prices adjusted for average South Dakota feeder cattle basis, prices for 500-599 lb steers are projected to average near $160/cwt during the third quarter of 2013 and close to $165/cwt for the fourth quarter. Depending on how low corn prices sink at harvest, feeder calf prices could likely surpass $170/cwt by the end of the year, which would be similar to price levels late last year. Prices for 700-799 lb steers are likely to average around $155/cwt in the third quarter and in the upper $150s in the fourth quarter, again based on futures prices and typical basis levels for South Dakota.
Interestingly, forward contracted prices for fall delivery prices are well above the price levels suggested by the futures market and adjusted for South Dakota basis. Last week’s video sale prices for steer calves (500-599 lb) sold in the north central plains states for October and November delivery were in the $170-180/cwt range. While these contracted prices are higher than implied by the futures market, early projections for winter calf-feeding appear profitable even at these price levels. For example, a 550 lb steer calf contracted for $175/cwt for mid-October delivery could be finished to 1300 lb slaughter weight by mid-May 2014 if it gains 3.5 lb/day. Valuing corn at $5.00/bu for the winter feeding period (based on March 2014 corn futures and South Dakota average basis), $77/ton wet corn gluten feed, $145/ton hay, and $290/ton supplement, a ration costing about $178/ton (dry matter basis) can be fed. Assuming a dry matter feed conversion of about 6.2 lb feed/lb gain, total feed expenses are around $415/head. Adding in other costs for yardage, interest, death loss, and marketing expenses brings the total feed cost of gain to about $83/cwt. Based on June 2014 live cattle futures and typical slaughter cattle basis in May, the projected profit on these calves is just over $70/head. Of course, there are production risks and significant price uncertainty with projections for winter calf-feeding programs this far out, but it appears like there is an opportunity to closely watch. In fact, this might be a year that ranchers may wish to consider retained ownership of their calves. We’ll revisit those possibilities as we get closer to fall weaning in an upcoming Cattle & Corn Comments article.
The information in this report is believed to be reliable and correct. However, no guarantee or warranty is provided for its accuracy or completeness. This information is provided exclusively for educational purposes and any action or inaction or decisions made as the result of reading this material is solely the responsibility of readers. The author and South Dakota State University disclaim any responsibility for loss associated with the use of this information. There is substantial risk of loss in trading commodity futures contracts and traders should consult their brokers for a full disclosure of these risks to determine whether such trading is suitable for them in light of their circumstances and financial resources.