Do feeding budgets work at record feeder cattle prices?

News
Nov 22, 2013
by WLJ

A large corn crop and falling corn prices this fall have resulted in record or near record high feeder steer prices, said Darrell R. Mark, Adjunct Professor of Economics at South Dakota State University.

Prices for 700-799 pound yearling steers in South Dakota posted an all-time record high of $172.64 /cwt during the week ending Oct. 18, 2013, which Mark explained was the first week of reporting after the government shutdown ended.

“In the weeks since then, those yearling steer prices have settled back to $169 to $170 /cwt; still, that’s fully $30 /cwt higher than during late May, 2013,” he said.

Lighter weight steer calves weighing between 500 and 599 pounds have averaged $190-191 /cwt for the last month, which Mark said is only about $8 /cwt lower than the all-time high established in June, 2012, for this weight of feeder steers.

He explained in his iGrow.org article that the price increases in the feeder cattle market are resulting from both supply and demand factors.

“Historically small cow herds have restricted calf crop supplies for several consecutive years. Now, as some herd rebuilding begins, fewer heifers are available for feeding as more are held for breeding replacement,” he said. “On the demand side, ample feeding capacity and much lower corn prices this fall have spurred interest in placing feeder cattle amongst commercial feedyards and farmer-feeders.”

Mark said it’s likely that these supply and demand fundamentals won’t change for a year or more, which could drive feeder cattle prices to new highs in the year ahead. In the meantime, examining the economics of feeding programs at current price levels is important.

At $4.10 per bushel for corn, $59 per ton for wet distillers grain, and $60 per ton for ground corn stalks, a feed ration can cost about $172 per ton on a dry matter basis, Mark explained.

“When adding in other costs like yardage, death loss, veterinary and health, and interest on the feeder steer and half of the variable feed expenses, total cost of gain is about $82 / cwt, assuming average cattle performance,” he said.

“With hedging opportunities around $136 /cwt for April, 2014, fed cattle, there is about $82 per head profit in placing these yearling steers now.”

Mark also projected the feeding costs for placing lighter weight calves on feed at today’s prices. Doing so is a breakeven proposition, he said, because the finished date is later in the summer during the seasonal low in the fed cattle market.

He noted that it might be possible to avoid marketing the calf-feds during this time period by lengthening the feeding period and targeting them for slaughter after prices seasonally rebound from the summer lows in September or October.

“Doing so would likely require different feedstuffs as the feeding period would need more of a pronounced backgrounding/growing phase,” he said.

As always, Mark said costs, cattle performance and other assumptions will differ among feeders. “But, based on these averages, it would appear that there is a profit opportunity to feeding cattle—even at today’s near record feeder cattle prices. And, that’s something that’s been hard to come by for several years,” he said.

To view examples and read past articles by Mark, visit iGrow.org. — WLJ

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