After all the government hearings and stuff in Washington, USDA didn’t waste much time developing a new price distribution report for beef-type fed cattle and a new twice-a-day report for formula base purchases.
These reports give us a better idea of value differences in finished cattle, and the value differences are wide. They show us the value in $2 increments for both dressed and live purchases. For instance, on dressed formula cattle they report that 977 head received a $62 premium over the weighted average of $195.91 on the formula, but it also shows plenty of cattle being discounted too.
They do these price distributions for negotiated live and dressed prices, formula net, forward contract and negotiated grid. Selling cattle through a formula gives cattle feeders the opportunity earn way more money than the weighted average price. It would be nice to have a full description of the cattle earning those formula and grid premiums.
The daily report tells you what class of fed cattle sold with weight and price ranges; it’s a simple tabulation of reports we already get. What this report is going to do for price discovery is unsure. Price discovery starts with the seller asking for more money when he thinks he has the leverage. And frankly we’re walking into a period of time when cattlemen will have more leverage.
I watched the fed cattle auction online recently; Lanesboro, MN is one of the few fed cattle auctions left and the price distribution is remarkable. There was quite a variety of cattle selling, from dairy steers to good black and Red Angus cross steers and heifers. Cattle were selling between $115 to $133.50. There were several buyers and they were picky about what they bought. These buyers have been buying these farmer feeder steers forever, and they have accumulated data on which ones are worth more.
Cattle numbers are down, and cattle feeders haven’t been bashful about buying yearlings. I was at Superior’s Video Royale sale in Winnemucca, NV last week and it was good to get out and visit with cattle folks. This COVID-19 episode has slowed my travel down a lot.
When cattle feeders start spending $160 and more for 900-lb. yearling feeder steers and $10 back on yearling feeder heifers, you know cattle are going to be in short supply. We’re even seeing the 500-lb. steer calf market trading between $180-200 and higher in some cases.
One thing for sure: Everyone who’s buying these video cattle knows something about them. Health and performance and other attributes like Verified Natural and no hormones are bringing the big premiums. These video sale cattle are selling with excellent descriptions, they are earning reputations and are in demand. Feeders can buy with confidence.
I also get the feeling that feeders and packers are starting to secure lighter cattle, so they have inventory to process. It appeared that a lot of cow/calf producers are producing calves for a program, Verified Natural, non-hormone, no antibiotics, humane handling or even a specific genetic profile. You would think they are contracting for a program, but they are not. They sell at auction for price discovery.
USDA came out with their monthly crop report and has estimated a 4 percent gain for corn production at 14.8 billion bushels with an average yield of 174.6 bushels an acre. So, we should have plenty of corn on hand. The corn futures traders saw something else and rallied the corn market about 20-25 cents, and as a result, feeder cattle futures started losing ground. What a market! We produce more corn than the year before and the price goes up.
Theses new cattle market report are interesting, especially on price distribution. However, I would like to see more detail on what brings the premiums and discounts. I’m sure those value differences are obvious, but more information is always better.
I know that most cow/calf producers are more interested in knowing exactly what kind of deals the packers have made in the alternative marketing agreements. The example of Easterday Farms and their feeding arrangements with Tyson can really get you thinking. Tyson has a packing plant in Washington and needed cattle to process, so they financed Easterday to do the job and take the risk.
Agri Beef bought the feedyard from Easterday and now Tyson wants it back. This will be interesting to watch. Meanwhile, keep praying for rain in the West. — PETE CROW
