Drought, supply and demand, and the feeder cattle market—another cattle cycle. In this year’s feeder cattle market, the first quarter brought sharply higher feeder cattle prices, aligning with a similar pattern charted in 2014. Bookending a decade, 2014 and 2024 could be highlighted by direct and abrupt changes to the market. Those market spikes can be partially blamed on rapidly shrinking feeder calf supplies, an effect of drought-reduced beef cow numbers in the U.S.
Marketing in a seller’s market
Commodity markets tend to respond well to supply and demand fundamentals. From the supply perspective, this is true of ag commodities—especially cattle—that aren’t readily replenishable in a short time. Historically high prices and widening profit margins incentivize producers to expand production.
The U.S. beef cow herd in the Jan. 1 USDA inventory report was 28.2 million head, 11% smaller than the cycle peak inventory in 2019. The market responded to the smaller feeder cattle supply with corresponding, record-high feeder cattle prices.
When feeder cattle supplies fall well below feedlot demand, prices ratchet higher quickly. In addition, the price differential tends to narrow between the highest and lowest quality feeder cattle. With competition to fill feedlot inventory at its peak, scarcity prevents buyers from discriminating during these periods.
{{tncms-asset app=”editorial” id=”ddb575f6-0ef1-11ef-909c-7b0fe37f7769″}}
Some may see this “seller’s market” as an opportunity to cut corners with health protocols, post-weaning nutrition or third-party verification protocols to validate genetics or management protocols. Indeed, while cattle supplies are tight, many below-average cattle will garner higher prices than they merit.
For another perspective, consider the risk/reward relationship taken on by backgrounders and feedyards purchasing feeder cattle in current market conditions. The up-front cost of feeder cattle has never been greater than the early 2024 market has indicated.
Speaking in general terms, the resulting financial risk on a per-head basis has also never been greater than today. Such being the case, this continues to heighten desire to purchase top-quality cattle that will not only remain healthy through the feeding period, but also outperform industry averages in feed conversion and carcass quality. While buyers will often be forced to pay above their breakeven prices, they are also highly motivated to extend their bids to decrease performance risk.
These observations offer two differing approaches to marketing cattle in a seller’s market. On one hand, the price difference between the best and poorest cattle may narrow in this period. But on the other hand, incentive exists for buyers to pay a premium for “quality” cattle that decrease risk or increase odds for their reward.
Insights on feedyard demand
In 2023, CattleFax—in conjunction with Angus Media—completed the Industry Insights survey. Complementary to the logical approach buyers may take in response to current market conditions, the survey results offer valuable information across multiple segments. Focusing on the feedlot sector, survey respondents represent approximately 20% of the industry’s 17-million head feedyard capacity of those 1,000 head capacity and larger yards—a cross-section of feedyard sizes from less than 20,000 head capacity to more than 50,000 head capacity.
{{tncms-inline id=”5f8f7645-e690-46a4-91cc-2976132efc5d” type=”relcontent”}}
In assessment of the current feeder cattle offering, cattle feeders indicate cattle health as a priority for industry change. Improvements to vaccination protocols were listed the highest among all potential changes with 83.7% indicating this as a trait that will be “more important” to their future buying decisions.
This speaks immediately to the risk/reward relationship of feedlot sickness and mortality as investment per head escalates. Consequently, cow-calf producers will be rewarded, on average, for their vaccination and weaning programs.
Behind vaccination protocols, feedyards prioritized more description on potential for carcass merit. With 47% of feeders indicating this as “more important,” 25% were neutral on this topic and 28% indicated this as less important. This speaks to the individuality of feedyard operations when it comes to differing management and marketing styles.
Some operations are more focused on capturing efficiencies in their operation by managing risk and keeping costs down. The 47% that place emphasis on carcass merit clearly rely on carcass quality premiums as a piece of their profitability strategy. Since roughly 70% of fed cattle are currently marketed on a formula or value-based grid, it’s instructive to cow-calf producers that some genetic emphasis be placed on carcass quality.
When purchasing feeder cattle, cattle feeders, consider vaccination history, weaning history and breed makeup to be highly valuable.
With profitability at the forefront, feeders ranked cattle traits that pose the greatest challenges to profitability. With a score of 1 representing a smaller challenge and 5 representing the greatest challenges, the most highly ranked traits were health (4.14), feed conversion (4.05), dressing percentage (3.81), growth rage (3.57), carcass weight (3.54), quality grade (3.54).
Factoring in carcass merit
When it comes to carcass quality and consumer demand, the trends are firmly in place. As consumers face record-high beef prices, there have been some tradeoffs over the past several months. Some higher-priced cuts have been met with slightly lower demand while similar, lower priced items have replaced them with increasing demand. The most obvious example is the swap between ribeyes and strip loins last December and again this spring.
{{tncms-inline id=”97fc3b2c-e946-4494-a2e8-3152266de527″ type=”relcontent”}}
Yet higher-quality, richly marbled beef remains a mainstay of consumer demand. Evidence of this came through in the Choice/Select price spread trend. The 2023 annual average cutout values revealed a record-wide premium for Choice over Select carcasses at $20.10/cwt, a $2.58/cwt increase on the prior year. This was true even as the share of Choice grade carcasses marked the second largest in history at 72.7% of total.
The Certified Angus Beef® (CAB) brand total carcass value was slightly smaller in 2023 at $16.80/cwt over Choice, down just $0.29/cwt from the prior year. With the Choice premium factored in, this brought CAB®premiums on packer grids to $99.18/head over the dressed carcass price for the year.
USDA Prime carcasses (including CAB® Prime) remain the target for carcass sales. The 2023 Prime premium on packer grids average $18.10/cwt compared to the prior year’s record-high $23.50/cwt. The $5/cwt downtrend in the premium is certainly not an indication of waning demand when considering that Prime carcass production, as a percent of total fed cattle, has doubled in the past decade.
As indicated in Industry Insights survey results, cattle feeders rely on carcass quality premiums for a portion of their profitability. The listed premiums for Prime, CAB® and Choice carcasses should motivate cow-calf producers to place appropriate emphasis on carcass traits as they select genetics.
Half the battle is producing good cattle, and cattlemen who’ve done the work to check boxes for cattle feeders stand to receive premiums. However, marketing these advantages may be as important today as ever, given the dynamics of a tight feeder cattle supply. In generating buyer interest, documentation of health and weaning programs is clearly the most important.
Further demonstrating genetic merit for feedlot efficiency, carcass merit and breed makeup is also in demand. Third-party programs, such as AngusLink, have proven effective at filling the void in genetic information to the feeder cattle market. Nonetheless, maintaining relationships with potential buyers should not be overlooked as a demand driver for quality cattle.
