Fed and Feeder Cattle Markets Playing Different Songs
There seems to be two different market scenarios playing out right now in the U.S. cattle industry. Fed cattle and boxed beef are caught up in issues of relative demand weakness while calf and feeder cattle markets are marching strong on tight supply fundamentals. Although this situation has occurred before, it is a bit unusual to have different segments of the market operating quite independently at the current time. It suggests that there will be some adjustments necessary at some point in the coming months.
Boxed beef prices continue under pressure with lack of exports, ample pork and poultry supplies and a lackluster domestic economy. Although Choice boxed beef price recovered a bit this last week to the $130 level after dropping lower the week before, the relatively weak undertone of beef markets continues. Packer margins remain negative as packers have been forced to pay up a bit to get cattle to meet market obligations. Thus, while fed prices stabilized a bit this week around $84, more pressure will likely push fed prices towards the $80 level again unless demand kicks in strongly in the next week or two. Recent announcements about an agreement with the Japanese for beef exports will not result in any movement of beef anytime soon so the market continues to look to the domestic economy to absorb increased domestic supplies of beef.
Meanwhile, feeder cattle prices have remained quite strong, although slightly weaker recently. Feedlots have continued to bid fairly aggressively for limited supplies of feeder cattle. However, many feedlot cattle are losing money at the current time and record feedgrain supplies and excess pen space will not be enough to prevent feeder prices from adjusting downward unless fed cattle prices improve substantially. At the current time, there is a $30 spread between feeder and fed prices. Sooner or later that spread must narrow and it means that either fed prices must increase or feeder prices will decrease. The timing is a bit uncertain but it could well result in decreased feeder cattle prices in the first quarter of 2005.
Calf prices are the most strongly tied to cyclically reduced animal supplies and continue very strong. If feeder prices adjust downward as suggest above, it might leave stocker producers holding the bag on today’s expensive calves when those calves are marketed off wheat in early 2005. If enough pressure develops and lasts long enough it could eventually push calf prices down as well but this will occur only under very severe and prolonged fed and feeder cattle market problems. By the time we work through the winter and see how the fed and feeder markets play out, calf markets will be looking ahead to green grass and calf prices will likely stay strong.
Source: Derrell Peel, OSU Extension Posted on www.Cattlenetwork.com 11/12/04.
posted by Dr. Harlan Hughes 9:25 AM
Beef Calves, Sell’em or Feed’em?
With prices for fall weaned calves at historically high levels how might beef cow-calf producers determine the best course of action when it comes to selling or feeding calves? How might producers work through the various prices, feed costs, rates of gain and other livestock particulars to determine what will really make their operation the most profit?
If producers are to consider selling or feeding calves they need to consider a variety of facts and figures that can greatly affect the final product. Producers must first of all be either set up to feed calves or be able to make arrangements with commercial feedlots. While home lots may cost as little as 10 cents per day, commercial lots typically charge from 25 to 30 cents per head per day plus the cost of feed which can typically run from 60 to 90 cents per head per day. Other items such as veterinary bills are usually added to the daily lot and feed charges.
A key element for producers to understand is that of the cost of the ration on a per pound of gain basis. By definition the ration must meet the growing nutritional needs of the calf. Producers need to carefully examine their feeds and know if the feeds when fed in the intended quantities will meet the calves nutritional needs and growth projections.
This could be true this year with the ample supply of immature grain corn in many parts of the state. Some producers may be tempted to over feed corn silage that may be low in energy due to the absence of the grain portion. Producers may wish to consider feeding barley, which in North Dakota is in greater abundance than grain corn this year and is fairly economical to purchase. A balanced ration is critical to maximizing both rate of gain and profitability.
Understanding the difference in the breakeven prices and profitability levels of the same types of calves priced only $5 or $10 per hundred-weight higher or lower is critical if producers are to recover more than the value of the feeds alone and gain a realistic profit for their management, risk and labor. Producers may get a feel for upcoming calf prices by observing the feeder calf futures prices for the various months. These futures prices are based on 700 to 849 pound medium and large framed number one feeder steers.
Beef producers may go online at www.ndfarmmanagement.com to review beef backgrounding and finishing budgets for various weights of calves with various prices, rates of gain and assorted feed costs. These breakeven prices and budgets were developed with the listed “Feeder Calf Budgeting Spreadsheet”. Producers may with the use of the Excel™ spreadsheet program run these from the web site or download them and use them in that manner. These items are found in the reports section of the web site.
Producers can find additional information on this and other crop and livestock enterprises as well as a variety of other farm data at the afore-mentioned website.
Contact: Steve Metzger, North Dakota Farm Business Management Instructor 701-652-2951
Email : email@example.com
posted by Dr. Harlan Hughes 7:53 AM
Backgrounding Calves - Gross and Net Margins
How profitable is it to background feeder calves in the Northern Plains?
Typically a feeder calf to be backgrounded enters a feedlot weighing about 550 lbs., stays there for 120 days and leaves the feedlot at approximately 750 lbs. All this was done for an increase in value of $100 based on the most recent three years of data collected from 275 farms enrolled in the statewide ND Farm Business Management Education Program.
The $100 value increase is the gross margin. Dividing the gross margin by the 200 lbs. gained results in the breakeven cost of $.50 per pound of gain. The actual cost of gaining a pound of beef in this example has to be less than 50 cents before a net margin or real profit is realized.
The actual three year average cost per pound of gain was 46 cents. This converts to a net margin of 4 cents per pound of gain or 200 lbs gained times 4 cents which equals $8 per head of net margin.
Of the total group, the 20 percent most profitable producers had a cost of 36 cents per pound of gain. The net margin of $.14 per pound of gain translated into a profit of $28 per head. These 20 percent most profitable producers made over three times more profit than the average producers.
Another significant factor in feed lot profitability is “rollback”. This can be defined as the difference in the buy-sell margin. During the last three years, the 550 lb. calf was purchased for $9 more per hundred-weight (cwt.) than for which the 750 pound calf was sold. The original 550 pounds was later sold for $49 less than its original cost. This rollback can only be overcome and be made profitable with efficient gains.
Many local feedlot operators agree that working with a $12 per cwt. or greater rollback makes it difficult to maintain profitability.
What will be the rollback during the current feeding cycle? What will it cost per pound of gain in this feeding cycle? What will be the breakeven cost? Will backgrounding be profitable? Many questions remain to be answered, and the answers will vary by area and by producer or feedlot operator.
For more information visit the website at www.ndfarmmanagement.com . Producers can find beef backgrounding and finishing budgets for various weights of calves with various prices, rates of gain and assorted feed costs. A feeder calf budgeting spreadsheet and a gross margin spreadsheet can also be found at the website. The spreadsheets are Excel tm based.
Source: Press Release (for immediate release)
October 22, 2004
Contact: Jerry Tuhy
ND Farm Business Management Instructor, Dickinson, ND 701-456-0002 ext 31
posted by Dr. Harlan Hughes 8:59 AM