Fed cattle trade was again slow to develop in a very cautious market. At
mid week, feeders were holding out for $90 and packers were offering
$85. Packers have had positive margins over the last few days; that
margin was only about $5 a head and history has shown us that it doesn’t
take a packer long to give it all back to the feeder.
Only 14,000 head had traded through Thursday at $87 live, $137.00
dressed. Trade was expected to wait until Friday to get underway at
Slaughter levels were fairly strong even though packers announced that
they intended to cut slaughter levels for the next six weeks or so
because of weak beef demand. That didn’t seem to last long as daily
slaughter levels were in the 126,000-128,000 head range for most of the
week. If packers are serious about lowering slaughter levels, it usually
shows up on Friday or Saturday, which haven’t been down significantly.
Last week the industry processed 639,000 head. Last year, 621,000 head
were processed at that time. So far this year, the industry has
processed 962,000 more cattle than a year ago, or just a touch over a
billion pounds of beef.
Futures markets were fairly flat until Thursday when live cattle jumped
$1.70 on the nearby contract and $2 on December to close at $90.65. Some
of the speculation for the market strength was the storm market, which
was fairly limited and won’t have much effect. The boxed beef cutout
values were holding their strength at current market levels and
supporting live values. The idea is that cattle feeders may be more
current than many thought because slaughter weights have topped out,
signaling their seasonal high.
The beef markets have maintained some good strength. The Choice cutout
was at $147.68 and Select was at $137.60. Trade volume was very good on
the 25th but lackluster for the rest of the week. The cow beef cutout
has been much stronger in recent weeks at $106.57.
The trim markets have also been good with 90 percent lean trading at
$133.99, but the 50 percent product was at a low price of $36.83.
The corn markets are where everyone’s attention is. Both the futures and
the cash markets have a good head of steam on them and are moving the
corn markets rather well. According to Dillon Fuze, extension economist
at University of Utah, the ethanol industry is on a roll.
The ethanol industry is in the middle of a major expansion. Government
regulated clean fuel regulations and $75 per barrel crude oil prices
have created a major incentive for the ethanol industry to expand. There
are 97 ethanol plants operating and 35 more plants are under
construction. The ethanol industry is now using more than two billion
bushels of corn. That represents about 18 percent of corn use and that
percent will likely exceed 20 percent in the near future. Ethanol
production is expected to increase another 35 percent in the next
cropping year. What impact will that have on corn prices and how might
that impact the cattle industry?
A look at the Chicago Board of Trade December corn futures provides some
insight: December 2006, 2007, 2008 and 2009 prices were $2.43, $2.88,
$3.09 & $3.18, respectively on Sept. 11, 2006. From 1960-1972, the farm
price for corn averaged $1.13 per bushel and the fed cattle price to
corn price ratio averaged 24. Increased exports of corn increased the
average price of corn to $2.46 per bushel from 1973-1996 but fed cattle
prices also increased and the fed cattle/corn price ratio averaged 26
over that time period. However, the last 10 years have seen corn exports
flatten out and corn production increase. Farm gate corn prices have
averaged only $2.14 per bushel from 1997-2006. Fed cattle prices have
moved to record high price levels over that time period and the fed
cattle price/corn price ratio grew to an average of 35. Relatively cheap
corn has been a factor in the increase in fed cattle slaughter weights
and has influenced the proportion of calf-fed versus yearling-fed
If the trend towards higher priced corn, as projected based on Chicago
Board of Trade December corn futures, is correct, how will sustained
higher corn prices impact the cattle industry? Will some of these
feeding trends that I just mentioned be reversed? Will we see lighter
fed cattle slaughter weights? Will we see calves being grown to heavier
weights outside of the feedlots before being placed on feed? If corn
price increased and all other factors remained constant, I think I would
be safe in concluding that weights would decline and that cattle would
be placed at heavier weights. However, there will be competing and
offsetting forces at work in the market. If more calves are placed in
background and stocker programs, that would tend to increase the price
of corn stalks, silage, summer grass, and wheat pastures. Given present
cattle numbers, there is an excess feedlot capacity. Owners of those
feedlots will not likely want them to be empty. Feedlot economics is
like the tourist and motel business; you have got to keep the rooms full
to be profitable. Will cattle feeding location shift towards proximity
to the ethanol plants (Iowa, eastern Nebraska)? Research has shown that
feeding ethanol byproducts can fit well in a feedlot ration. Dried
distillers grain, wet distillers grain, and wet corn gluten are some of
the more popular by-products. The dried distillers grain can be shipped
economically some distance. The wet distillers grain and the wet corn
gluten must be fed fairly close to the plants for it to be economical.
Will we see an increase in cattle feeding in the Corn Belt and a
decrease in the Great Plains? Probably, but I think there will again be
competing forces at work in the market that will limit growth in Corn
Belt cattle feeding. The current excess feedlot capacity that I already
mentioned is one factor and the location of fed cattle slaughter plants
is another factor. Environmental regulations in the more humid and more
heavily populated Corn Belt region, compared to the high Plains, will
likely also curtail feedlot expansion in the Corn Belt.
I don’t have all (maybe none) of the answers to many of the questions
that I posed in this article. However, I think we all need to ponder the
questions. There is not likely an economist smart enough, or a model
sophisticated enough, to foresee all of the changes over the next few
years. However, I am a strong believer in the power of the market place
to allocate resources based on market prices. The price of corn and the
price of soybeans cannot get too far out of equilibrium before acreage
devoted to each crop will be altered to bring the prices back into an
equilibrium close to the cost of production. I do think we will see
higher and more volatile corn prices in the future. That will impact
cattle feeding profitability. Cattle feeders will not bear all of that
added risk and reduced profitability. They will pass some of it back to
cow/calf producers and stocker operators in the form of lower, and
perhaps more volatile, calf and feeder prices. I would suggest cowboys
do what they always do: pull your hat down, tighten your cinch, and hang
on for the ride.
The cash feeder cattle market moved mostly higher last week, with the
exception of the far northern tier, which was impacted by some severe
winter weather, particularly in Montana where prices were depressed as a
result of the weather. Feeder cattle futures were mostly uneven last
week, but remained mostly steady with the prior week.It appeared that
the potential for a higher cash fed cattle market last week was lending
support to cash feeder cattle in the country. Three consecutive weeks of
lower trending Chicago Mercantile Exchange (CME) trade and higher
Chicago Board of Trade December corn prices were shrugged off by the
cash market last week, despite feedlots having to sharpen their pencils
to recalculate breakevens now that the cost of gain has risen.
Particularly for feedlots which haven't locked in corn prices for the
winter, those costs are significantly higher for the first quarter of
2007. Last Thursday, December new crop corn was trading in a range of
$3.25 to $3.30 per bushel, with analysts predicting it could move
According to reports, winter wheat pasture, a favorite ration for
southern Plains backgrounders, has now received adequate moisture levels
over most of the winter wheat region to give the crop a good stand, but
many graziers have yet to purchase their stocker cattle. This demand
should come into play soon as temperatures cool down and sickness
becomes easier to manage in newly received cattle. The improvement of
wheat grazing prospects will be a benefit to southern Plains markets,
particularly since last year cattle backgrounders had difficulty finding
adequate pasture to graze cattle.
In Crockett, TX, last week, feeder steers and heifers traded steady to
$2 higher. Trade and demand was called strong. In Oklahoma City, OK,
compared to the previous week, feeder cattle sold $1-2 higher with good
demand for limited numbers since most cattle were marketed early in the
region as a result of the summer drought. However, the feeder supply was
much improved compared to recent weeks. Steer and heifer calves were
$2-3 higher also with good demand, especially for long weaned calves.
In West Plains, MO, compared to the previous week, the steer and heifer
market was $2-5 higher. Several light steers calves under 450 lbs. at
the start of the sale sold $8-12 higher, but only briefly. Supply was
called moderate and demand moderate to good, with most buyers being
fairly selective for quality and condition with the majority of sales
toward the upper end of the price range being weaned or at least having
one to two rounds of vaccinations. According to market reports last
week, the one thing that will get most order buyers' attention and bring
them to the front edge of their seats during these times of high feed
costs, depressed futures and fat cattle, is a good set of
weaned/vaccinated calves in right flesh showing characteristics of
overcoming shipping stress with a minimal cost start-up.
In Dodge City, KS, last week, steers 300-600 lbs. were steady to $3
higher, with some sporadic instances of $6 higher on weaned 400-450 lb.
steers. Those in the 600-700 lb. range were steady to $3 lower, while
700-950 lb. steers were called steady to $3 higher. Heifers from 300-450
lbs were steady to $3 higher, with some instances on weaned 400-450 lbs.
of $6 higher. Heifers in the 450-700 lb. range were weak to $4 lower and
those 700-950 lbs. were steady to $3 higher.
At Loup City, NE, in contrast to the prior week, steers and heifers
traded $2 either side of steady with the bulk of offerings trending
steady on a lighter than normal run of cattle. Demand was called
moderate to good at the sale.
In Aberdeen, SD, at Hub City, compared to the prior sale, feeder steers
and heifers sold steady to $3 lower with the best demand for reputation
steers over 600 lbs. and fancy heifers which will be working in breeding
As mentioned earlier, Montana feeder cattle markets were hampered by
weather early last week. At Billings, MT, compared to the prior week,
steer calves were $3-8 lower, except those in the 400-450 lb. class
which sold $9-10 lower. Heifer calves were $3-7 lower, except 350-400
lb. heifers which were called rather steady on light demand.
At the market in Jerome, ID, feeder heifers in the 400-500 lb. range
sold in a wide spread of $92-110 and 500-600 lb. range from $97.75 to
$109. Steers in the 400-500 lb. range sold from $110 to $120. Those in
the 500-600 lb. class sold in a range of $104-114 and steers in the
600-700 lb. range sold from $96 to $108. Heavy 700-plus pound cattle
sold in a narrow spread of $95-99 last week.
In Davenport, WA, compared the previous sale, a good run of cattle and
calves were uneven, with weights less than 600 lbs. and all heifers
selling $2-4 higher. Steers over 600 lbs. were called steady to $2
lower. Trade was moderate to active with moderate demand.
In Vale, OR, the market last week was steady on moderate demand for
calves in the 300-500 lb. range. Those weights over 600 lbs. were $2-3
lower than the previous week. Cattle in the 500-600 lb. class sold in a
range of $104-112 and yearling steers from 700-900 lbs. sold in a range
of $87 to $97.
Last week, feeder cattle contracts on CME were mostly mixed to lower,
with the rising grain market taking its toll on contract trader's
nerves. Despite that, the grain market showed some weakness last
Thursday and feeder cattle futures rose slightly higher across the board
in last Thursday’s session. The October contract closed the day at $107,
which was 30 points higher, and even with the week prior average.
November was up 30 points as well, closing at $104.75. December was
slightly higher at $102.80, March was up 22 points at $101.57 and April,
the biggest gainer of the day, closed up 45 points at $101.55. Market
analysts last week said any weakness in the corn market could provide a
rallying point in the feeder cattle contracts.