An extremely tight supply of feeder cattle, as evidenced in USDA’s September cattle on feed report, and falling corn prices shot feeder cattle prices to a record high last week.
Prices for heavier feeder cattle have posted localized highs for the past few weeks, but the nationwide feeder cattle market broke the all-time record last week with the CME Feeder Cattle Index for 650 pound to 849 pound steers hitting $159.63 per hundredweight.
The previous record was $157.44 posted the last week of February 2012, according to USDA’s Market News.
Heavyweight feeder cattle are at record highs, selling at nearly $160 per hundredweight. That’s a remarkable price, said Derrell Peel, livestock market economist at Oklahoma State University.
Several factors are in play, but underpinning it all is that the lack of feeder cattle is becoming more pronounced. In addition, the market is now into new crop corn, and corn prices have fallen $2 a bushel in the last two months, he said.
The market is favoring heaver feeder cattle. Feedlot preference is for bigger cattle that don’t have to be fed as long to get to market weight, despite lower feed costs, he said.
But opportunities exist for stocker operations with the resources to fill the weight gap between weaning and heavier feedlot weights. Prices on lighter cattle are at extremely high levels, $195 per hundredweight last week at Oklahoma City, but are relatively lower (per head) than heavier weight cattle, offering good margins for cattlemen to bring lighter cattle to heavier weights, he said.
Feeder cattle prices typically drop to a seasonal low between now and Thanksgiving, as more feeder cattle go to market. But supply won’t be as great this year and demand from feedlots and stockers will be higher than normal. Prices could be slightly lower to slightly higher this fall, he said.
The market should expect higher feeder and calf prices for some time to come. Cow/calf operators are likely retaining more heifers and heifer calves this fall in anticipation of herd rebuilding. That will tighten the supply even further, he said.
Things are getting better all the time if you’re on the sell side of cattle markets, said John Nalivka, owner of Sterling Marketing, a Vale, Ore., consulting firm for the red meat industry.
That finally includes feedlot owners, whose costs are going down significantly with falling grain prices. Feed costs have gone down $100 per head on fed cattle placed in feedlots in May. Break-even for fed steers coming out of feedlots is now $120 per hundredweight — due both to lower feed costs and lower feeder cattle prices last spring — and fed steer prices are at $126 per hundredweight, he said.
Feedlots are finally making a profit, $76 per head last week, after a year and a half of bleeding red ink, with losses as much as $300 a head in July 2012, he said.
Nalivka expects positive feeding margins all the way to December, but current feeder cattle prices will bring break-evens back into the $130s per hundredweight for cattle being placed into feedlots now, he said.
The problem is the cost of grain comes down and feedlots take that gain and put it back into feeder cattle prices. But with the funneled-down supply of cattle and competition, they have to pay for them if they want to feed them, he said.
Margins for packers started going south the same time feedlots started realizing a margin, about the first of September. Packers have generally been profitable from May to September, after having bled a lot of red ink from September 2012 to May, as much as $90 a head in November 2012. Last week, packers were losing $35 a head, he said.