Cattle market signals become more pronounced

Dec 10, 2010
by WLJ

If allowed to work freely, markets will provide whatever signals are needed to take care of any market situation. Right now, cattle markets are providing increasingly dramatic signals to address several needs in the industry. Cattle and beef markets across the board have jumped sharply in the past two weeks and both Live Cattle and Feeder Cattle futures prices suggest that we are in for an extended period of largely unprecedented cattle prices.

The signals are quite obvious. Calf prices will go higher and higher until there is sufficient incentive to increase cow/calf production. The predicament that we find ourselves in now is that current feeder values are very high and going higher, which makes it difficult to retain heifers, and yet we have to push calf prices overall high enough to make the value of future production enough to encourage heifer retention.

This process is typical of every cattle cycle, but never before have we been in such limited numbers that the tradeoff was quite so dramatic.

The other prevailing signal is the need to reduce use of expensive feed grains and thus to encourage more forage-based gains. Thus, despite very high prices, especially for calves, the value of additional weight gain continues to be very strong, encouraging more weight gain outside of feedlots. This stocker value of gain only occurs at heavy feeder weights as there is a steep rollback in prices for feeders up to 600 pounds.

The final incentive is that enhanced cow/calf values and enhanced stocker values make forage worth more. This has implications on the general value of forage for both rangeland and improved pasture areas and has specific regional implications. Enhanced pasture value suggests increased forage production, but most of the discretionary pasture areas also compete with enhanced crop values, thereby limiting forage expansion. In areas like the Southeast, high fuel prices add an additional shipping disadvantage to cattle production in that region. In contrast, cattle production in the western Great Plains and Intermountain Rockies clearly have a relative regional advantage in cattle production. These regional adjustments are long-term in nature. Over time, we will likely see feedlot production shift marginally back to the Midwest and cow/calf, and especially stocker production, shift marginally more to the central Plains and Rocky Mountain regions. — Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist