Cow-calf producers looking to sell calves in the next several weeks have benefited from strength in the market, and backgrounding profit potential exists. Certainly, delaying sales of calves has risks, and conditions should be monitored carefully.
Despite a 42 percent year-over-year and 65 percent week-over-week increase in combined auction volume the last week in September, average Iowa auction prices jumped sharply for the week ending Saturday, Sept. 29, 2018. Prices for 500- to 550-lb., Medium and Large #1 steers increased $4.02/cwt from the week before to $180.78/cwt and prices for 550- to 600-lb. steers were up $7.13/cwt to $171.38/cwt. Prices for steers under 500 lb. increased even more compared to the previous week. Iowa calf prices at the end of September were 5 percent higher than the same time last year. It certainly appears that calf demand is strong.
[inline_image file=”913488b4b6a5251aa1e1cbf822aa7659.jpg” caption=”Market offering flexibility for calf marketing – chart”]
A strong rally in feeder cattle futures since late August offers improved backgrounding profit potential. The current January feeder cattle futures contract price is $154.65/cwt. This implies an Iowa price for 725-lb. steers in December of $159.75/cwt given an expected basis of $5.10/cwt. At today’s prices, a 525-lb. steer would have a late December breakeven of $147/cwt to $153/cwt at 725 pounds based on cost estimates. Cost of gain could vary some due to feed costs and productivity, but the market is currently offering a price that more than covers breakeven cost of production for backgrounding.
Such opportunities to price in backgrounding margins are rare and generally fleeting. The strength in feeder cattle futures has kept lightweight cattle from seasonally declining while heavier feeders are seeing a wider basis. Producers should act promptly if futures price levels are attractive. Remember that futures have been notoriously volatile in recent years and feeder cattle futures can move $11.25/cwt in two days of limit moves. While no major cattle market weakness is foreseeable at this time, general expectations are for modestly lower cattle prices on continued growth in cattle supplies and beef production. There seems to be more downside risk than upside potential from current levels. — Lee Schulz, Iowa State University Extension livestock economist
