Feeder prices rise despite steady corn market gains

Cattle Market & Farm Reports, Editorials
Dec 20, 2007
by WLJ
Packer margins were greatly improved last week as a result of the higher boxed beef and kill levels, so it appeared that most fed cattle trade would wait until sometime last Friday. As of press time, feedlots were offering cattle at $93 live and $1.47 dressed, while packers improved their bids last Wednesday to $89 live and $1.45 dressed. Market analysts last week were predicting trade to be steady to $1 lower at $90 live and $1.45-$1.46 dressed.

Meanwhile, last week, packers were working through as many cattle as possible in an effort to take advantage of some of the best profit margins in months. Last Thursday, packers slaughtered 125,000 head, compared to 123,000 the prior week and 113,000 on the same day in 2006. For the week through Thursday, packers had harvested 478,000 head, compared to 484,000 a week earlier and 426,000 during the same week a year earlier. Much of the decrease in week-to-date numbers last week was the result of a holiday shortened week which limited harvest last Monday at some packing plants.

While packer margins have been positive, feedlot close out numbers have been less than impressive for the past several months. With winter stress, caused by severe weather in the Plains early in 2007, margins aren't likely to improve much for the next month. However, as relatively expensive feeder cattle are marketed during the first quarter, conditions are expected to improve, according to Utah State University Agricultural Economist Dillon Feuz.

“Based on my estimates, feedlots in Nebraska lost money on average most weeks during 2006. My estimate for the year was an average of negative $42 per head. The start of 2007 hasn’t been any better. In fact, by my estimate, average feedlot losses have been near $90 per head for the first several weeks of 2007," he said. "The combination of higher feed costs and harsh winter conditions have pushed total cost of gain to around $75 per cwt. Many of the cattle that have been marketed in 2007 were placed on feed before feeder cattle prices declined sharply this past fall. However, as we move forward, an increasing number of fed cattle marketed will have been placed on feed at relatively lower feeder cattle prices.”

Feuz said the most pressing question remains: ‘When will profitability improve?’
He said current estimates indicate first quarter losses will remain in the range of about $75 per head.

“However, by the time we get into the second quarter, feedlots should be closer to breakeven on most pens marketed. Returns for the second quarter could average around $5-10 per head,” Feuz said. “Feedlots will need to pay close attention to feed costs at the time of cattle placement and then look for opportunities to protect against higher feed costs if they want to find a few dollars in cattle feeding this year.”

One of the biggest factors expected to influence the fed cattle markets this year could be a shortage of available fed cattle later this year. In advance of last Friday’s cattle on feed report, market analysts were predicting January placement numbers to be well below year ago numbers as a result of severe winter weather during the month. Analysts also caution that the death loss, recorded as ‘Other Disappearance,’ could also be extremely high and play an abnormally important role in the number of cattle on feed in the U.S. According to figures from the Livestock Marketing Information Center, the number of cattle on feed is expected to be 1.8 percent below Feb. 1 of last year. Placements are predicted to be 14 percent below January 2006, and the number of cattle marketed is expected to come in 4.2 percent above year ago levels, mostly as a result of an additional marketing day during the month.

If the numbers come in as predicted, and feedlot placements continue to trend below normal levels, then fed cattle supplies should be expected to tighten later this year. Adding to that condition could be the trend toward heavier placement weights. Cattle this summer will likely spend more time grazing to reach heavier weights before being placed in feedlots. If grass is available this summer, the placement trend could continue for several months as feeders attempt to avoid the negative impact of $4.50 corn as long as possible.

Some of that sentiment was readily apparent in the futures markets last Thursday. Several new live cattle contract highs were reached during the day for the second consecutive session. However, prices pulled back slightly to close in a narrow range both sides of unchanged. February live cattle ended unchanged at $93.47 and was the only contract that failed to match or make a new contract high during the day’s trade. April fed cattle contracts were down 17 points, closing at $96.22, while June was up 27 points, closing at $93.95. August and October were also slightly higher, closing the day at $90.87 and $94.55 respectively.

Feeder cattle

Feeder cattle prices enjoyed a slight boost last week as the Chicago Mercantile Exchange cattle feeder index increased to $99.03, up slightly from the previous week. There appeared to be little cause for the increased prices as corn futures for March increased to $4.34 on the Chicago Board of Trade last Thursday compared to one week earlier when it traded at $4.07 per bushel.

Derrell Peel, extension livestock specialist at Oklahoma State University, attributes the slight increase not to higher fed cattle prices, but to the realization that feeder supplies are relatively tight. He also said it's not a matter of not wanting to feed cattle because of higher corn prices, it's simply a matter of wanting to feed a different kind of cattle. Peel expects this fall, the industry will transition from a lightweight cattle on feed market to a heavyweight yearling market.

In the cash markets last week, increased moisture across California made producers a little more optimistic. Many producers are purchasing cattle in hopes of running them on grass to obtain heavier weights before placing them in feedlots.

“There is some optimism despite increased corn prices and other things in the industry. I think producers are realizing that we’ll be okay,” said Jake Parnell, manager of Cattlemen’s Livestock Market in Galt, CA.

Parnell said prices were good on lightweight feeder cattle and producers were prompted by significant rain and warm temperatures to buy.

He said many cattle buyers are hoping to put the lightweight cattle out on grass in the coming weeks. Parnell added that heavier weight cattle were also selling well. This can be attributed to the feedlots’ demand for heavier weight cattle that require fewer days on feed as corn prices continue to soar.

In Galt, CA, last week, feeder cattle of all weights were $3 higher than the previous week. Large lots of five to six weight steers sold for $98 to $113. Heifers at the same weights sold for $92 to $103. Smaller lots of steers sold for less at $88 to $100, while their heifermates in small lots sold for $85 to $98.

To the west, feeder steers in Riverton, WY, were up $1-2 last week. Heifer calves were steady to slightly lower on a limited offering. Demand for feeder cattle was good with 515 to 585 lb. steers selling for $113.50 to $126. Heifers of similar weights sold for $92 to $101. Heavier weight steers were down by almost $2 this week, with nine weight calves selling for an average of $93.

In La Junta, CO, steer and heifer calves under 600 lbs. were $1 to $2 higher. Yearling feeder steers were steady to $1 higher while yearling heifers remained steady. Steers weighing 550 lbs. averaged $124.50 while heifers that were similar in weight brought $99 to $102. Steers over 800 lbs. sold for an average of $95 while heifermates sold for an average of $91.

In Lexington, NE, feeder steers and heifers traded mostly steady to $2 higher with some instances of $3 to $5 higher. Offerings consisted mostly of ranch raised, one iron cattle, with weigh-in conditions in the buyer's favor, with only a few consignments carrying mud. Demand was very good and trading was called moderate to active. Steers weighing 527 lbs. sold for an average price of $127.25 while heifers at similar weights sold for $108.18. Eight weight steers brought $97.71 while heifermates sold for $93.

Feeder steers in Huron, SD, sold steady to $3 lower and lightweight feeder heifers were steady to $2 higher. Heifers over 700 lbs. sold steady to $2 lower. Demand was reportedly good. Five weight steers averaged $125 and heifers at a similar weight sold for $108. Steers weighing 750 to 800 lbs. averaged $94.10 while heifers in the class sold for an average of $89.87.

Feeder steers and heifers in Oklahoma City, OK, were steady to $2 higher last week. Steer and heifer calves were $2 to $4 higher. Demand was reportedly very good for all classes, especially cattle headed for grazing. The sale included several cattle that recently came off wheat pasture in medium to heavy flesh conditions. Demand for feeders late in the day diminished some, especially in cattle over 750 lbs. Steers ranging from 550 to 600 lbs. averaged $118.02. If the steers were verified value added, they averaged $122.38. Meanwhile, 850 lb. steers averaged $93 to $98. Heifers averaging 577 lbs. called for $100.82. Heifers weighing an average of 824 lbs. averaged $91.57.

Amarillo, TX, sold feeder steers and heifers firm to $3 higher last week. Five,weight steers averaged $116 and heifers weighing between 500 and 600 lbs. sold for $95.50 to $101.50 respectively.