Fall grazing prospects for Oklahoma cattle shaping up

Monday, August 5, 2013

Much of Oklahoma experienced significant rainfall as July gave way to August, providing a number of cattle producers with what appears to be the best opportunity for fall and winter grazing in more than three years.

Derrell Peel, Oklahoma State University Cooperative Extension livestock marketing specialist, said the moisture had two significant effects: First, it boosted summer forage production of both pastures and hay, and second, it enhanced prospects for wheat pasture this fall.

“Conditions could turn dry at any time, and there remain critically dry areas in the state’s western counties and the Oklahoma Panhandle,” he said. “Still, the soil moisture now in place likely means early wheat establishment for grazing will be possible for a good portion of the state.”

Feeder cattle prices have improved significantly since the lows of late May, with most classes of feeder cattle up $10 to $12 per hundredweight. Prices for heavy feeders have improved proportionately more than for the calves and that has improved the stocker value of gain offered in feeder markets.

At current prices, the value of weight gain for stockers is more than $1 per pound of gain for a wide range of beginning stocker weights – from 400 pounds to more than 600 pounds – and for weight gain ranging from 250 pounds to 400 pounds.

“This value of gain reflects the fact feedlot cost of gain continues to run well in excess of $1.10 per pound in most cases,” Peel said. “Some of the strength in feeder prices reflects expectations of a large corn crop and a roughly $2 per bushel decrease in average corn prices in the coming crop year, compared to the 2012-2013 crop year.”

Peel said this suggests the potential for feedlot cost of gain to decrease into the 80 cent to 90 cent per pound range.

Lower feedlot cost of gain will have implications relative to the overall demand for feeder cattle and also for the relationship of feeder cattle prices by weight. Lower corn prices imply higher prices for lightweight feeders relative to heavy feeders at a given market level.

For example, at the current time, the price of 825-pound steers in Oklahoma is about $144 per hundredweight compared to $160 per hundredweight for 575-pound steers, which is consistent with a feedlot cost of gain of roughly $1.07 per pound.

“If the feedlot cost of gain decreases to 85 cents, the 575-pound steer price would increase by roughly $10 per hundredweight, with the same price for 825-pound steers,” Peel said. “As we move into the new crop year and lower corn prices, this implies lightweight feeder cattle and calves are likely to increase in price relative to the heavyweight feeders this fall.”

As for the overall feeder price level this fall, October Feeder futures are currently trading near $158 per hundredweight. For an 825-pound steer, basis Oklahoma City, this suggests an October price of roughly $156 per hundredweight given average basis levels.

“Basis for the heavy feeders has been weaker recently,” Peel said. “If that persists into the fall, it could imply an 825-pound steer price in the range of $148 to $154 per hundredweight, an increase of $5 to $10 per hundredweight from current levels.”

Combining the cheaper feedlot cost of gain and these futures price levels suggests the 575-pound steer price could average from $165 to more than $170 per hundredweight this fall.

“That would imply an 825-pound steer off wheat in early March 2014 would have a breakeven of approximately $149 per hundredweight,” Peel said.

March Feeder futures are currently more than $159 per hundredweight, which implies an 825-pound steer price of $150 to $153 per hundredweight.

“There appears to be some margin potential for fall and winter stockers at this time,” Peel said. “Weather conditions, with respect to both corn markets and fall forage potential, will be very important, as will the beef demand impacts on wholesale beef and fed cattle prices this fall and into 2014.”

Cattle and calves represent the number one agricultural commodity produced in Oklahoma, accounting for approximately 46 percent of total agricultural cash receipts, according to National Agricultural Statistics Service data.