Bullish feeder cattle markets providing opportunities for beef producers

Friday, November 3, 2017

Feeder cattle markets have stayed stronger than most analysts expected this fall, offering a number of opportunities for all types of cattle producers.

“You know that old saying about a gift horse and its mouth? Well, this is not the time to be checking the teeth on current feeder cattle markets,” said Derrell Peel, Oklahoma State University Cooperative Extension livestock marketing specialist. “Calf prices have dropped very little this fall from summer levels, much less than the normal seasonal decline.”

It is true: Oklahoma calf prices this October were about 27 percent higher than the same time last year, enabling cow-calf producers to sell weaned calves for $150 to $200 per head more than the same period in 2016.

Prices for heavy feeder cattle have not declined seasonally either, and actually increased this fall. Seven-weight steers are up about 6 percent in October from August and are 25 percent higher than last year.

An increase in heavy feeder price relative to stocker price increases the value of gain and is a signal to put more weight on cattle. For example, as of this writing, adding 250 pounds to a 500-pound steer currently has a value of gain of about $1.35 per pound at current prices.

“Of course, current value of gain is only the buy signal and does not include the market risk between now and when the 750-pound steer in the above example will be sold,” Peel said. “However, Feeder Cattle futures have been remarkably strong and currently offer an opportunity to lock in good margins for feeders sold in the March-to-May time period.”

Peel added the 750-pound steer will likely have a breakeven of $140 to $145 per hundredweight in March, depending on gain and costs.

March Feeder futures as of this writing were about $153 per hundredweight suggesting a good margin opportunity for winter grazing. Stocker producers, and cow-calf producers with potential to retain weaned calves as stockers, should pencil out the opportunities depending on beginning weight and expected timing and weight of later sales.

“While cash market fundamentals are solid, spring Feeder futures are arguably overpriced and subject to correction at any time,” Peel said. “The best opportunities may be fleeting.”

Earlier in the fall, feedlots were losing some money and appeared to be paying too much for feeder cattle and thus jeopardizing feedlot margins for the coming months. However, cash fed cattle prices have improved recently, increasing current margins.

Peel believes cost of gain to stay very favorable for the foreseeable future. Moreover, Live Cattle futures prices have pushed higher recently to levels that come close to supporting current feeder prices for cattle finishing through next April.

“Just remember, as with Feeder futures, the Live Cattle futures pricing opportunity may be short-lived,” Peel said. “Strong demand is what is making all of this possible, allowing all sectors of the industry to have decent margins simultaneously and will be the key as beef production continues to grow in 2018.”

Boxed beef prices have recovered about $10 per hundredweight from the early fall lows. Retail beef prices are holding close to year-ago levels despite a 4 percent increase in beef production in 2017. Demand is strong in both domestic and international markets, with year-to-date exports up more than 14 percent.

Oklahoma is the nation’s fifth-leading producer of cattle, bringing in more than $3.7 billion in cash receipts, according to USDA National Agricultural Statistics Service data.

The Oklahoma Cooperative Extension Service is one of two state agencies administered by OSU’s Division of Agricultural Sciences and Natural Resources, and a key part of the university’s state and federally mandated teaching, research and Extension land-grant mission.