Are We Seeing The Peak Prices For This Cattle Cycle Right
by Derrell Peel, OSU Extension 4/22/2005
Feeder cattle prices this spring are running sharply higher than this
time last year. For calves and stocker cattle, prices are currently
16-20 percent above a year ago, while heavier feeder cattle prices
are up 14-16 percent above this time last year but not above the
midsummer highs of 2004.
There is a good chance that calf prices have put in the cyclical high
this spring. With the slight increase in the cow herd in 2004, we
should begin to see some increase in calf crop this year and in
coming years, which will translate into lower calf prices. However,
the rate of herd rebuilding will likely be relatively slow and we
should maintain strong calf prices for another 2 years or more, even
if they are down slightly from this spring's peak levels.
The heavier feeder cattle prices have strengthened much like they
did last year but about two months sooner than last year. Can
feeder prices maintain the current strength or even increase further
into the summer and fall? That question is critical to both summer
stocker producers and cattle feeders but for different reasons.
Budgets for summer stockers look much like they did a year ago.
Season-long cattle will have a breakeven around $115/cwt. at 700
pounds in September. With today's prices pushing $120/cwt, the
budget will pencil out if current prices hold into the fall. However,
the risk is there and there is certainly no way to price these cattle
on the futures market at this time. Fall Feeder futures will offer
about $110/cwt. at best for 700 pound steers.
Today's price of near $120/cwt for 700 pound steers implies a
feedlot breakeven in September of roughly $94/cwt. Fed cattle are
bringing about that much today but will they bring that much in
September? Certainly the futures market does not promise any
such fed cattle prices for the fall. The futures are currently offering
closer to $84/cwt for September fed cattle, which would translate
into $100 to $150/head losses for feeding cattle. This is, of course,
exactly what happened with the high-priced feeders bought last
summer and sold in the November to January period.
With the level of feedlot losses suggested above, it would seem
difficult to expect heavy feeders to maintain current price levels very
long unless beef demand prospects improve enough to pull up boxed
beef and fed cattle prices. Nevertheless, keen competition for
limited feeder supplies will limit any feeder price declines. It appears
that feedlots will continue to be caught in markets with lots of risk
and very poor margins. Stocker producers likewise face
considerable risk and limited margins. However, stocker producers
who market animals at 700 pounds or less will have somewhat
better profit possibilities than those taking cattle to heavier feeder
posted by Dr. Harlan Hughes 9:48 AM