Grain, transportation costs grip feeder markets

Nov 11, 2008
Grain, transportation costs grip feeder markets

Last week offered good insight into the current state of the cash feeder cattle markets, especially in the western U.S., as Western Video Market and Superior Live stock Auction both held large sales.

As buyers in the Midwest begin to bid up for the higher quality runs of calves they find in local auction markets, the large video sales gave a good sample of what both light weight and heavier feeder cattle are worth throughout the Plains and West. For weeks now, high grain prices have caused buyers to seek out heavy feeders to reduce the time required the finish the cattle out.

Less grain in equals lower input costs, which can help feed yards cut heavy losses and in some cases, help the operation remain in the black.

High fuel costs have contributed to a wide basis on cattle coming out of areas far removed from feed ing operations and grain produc tion, as evidenced by the heavy discounts on lightweight feeder cattle which often sell below the heavies on a price-per-cwt. basis.

Darrell Mark, agricultural econ omist with the University of Ne braska-Lincoln, says the current state of the feeder cattle market makes sense, given the high cost of inputs.

“There are pretty understand able forces driving the feeder cattle market right now,” he said. “It’s really Economics 101 in some re spects.

Softness in the cash market is to be expected, and it gets worse the further away you get from feed yards or grain.” Volatility in the corn markets is not through yet, said Mark, who pointed out that even once harvest starts, grains will be on a roller coaster ride until a firm grip on the total harvest amount is established.

“There’s so much risk right now in terms of what corn is going to do that the uncertainty in those grain markets will keep feeder cattle on the defensive. The pro jections are for a corn crop that will be adequate, but there’s still a lot that can happen between now and harvest. There may be some surprises, and the crop is not in the bin yet.” High transportation costs and expensive grains are production factors that are not likely to go away any time soon, said Mark, who also mentioned the increased demand for heavier feeder cattle.

“People are definitely respond ing to feed costs by trying to cut the number of days on feed down and especially in areas far re moved from grain sources, the heavy feeders are selling at a pre mium to the lighter calves,” Mark pointed out. “I don’t see any reason to believe that this trend will change within the next year. In certain local markets, there may not be a discount for lightweight feeders, but on a national basis, the economic forces that are caus ing this to happen will likely still be in place for awhile.”

Despite the way the numbers appear on the surface, Mark says he believes the discounted light weight cattle may offer savvy buy ers an opportunity.

“Using numbers penciled out from a couple weeks ago, you may actually be able to take the lighter weight calves at a discount and get better returns on them, even though you’d have to feed them longer,” he explained. “At the time, projections showed almost

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