Beef Market Advisor

Thursday, November 03, 2005

Possible Japanese Border Opening To U.S. Beef Is Generating Strong Cattle Prices

The Figures for this article are available at Please go there to get the four figures that go with this chart. You may or may not need to scroll down to find the pictures that are labeled. Double click on the small figure image to load and print a large image of the figures.

Some information sources are suggesting that the Japanese border might open up before the end of the year. (Of course, we have heard this before.) While the opening date is uncertain, he who owns cattle when the border opens should gain windfall profits. Clearly, this potential for windfall profits is driving the current feeder cattle markets.

Instead of having the normal decrease in feeder cattle prices as the Fall runs develop, we are seeing a very strong feeder cattle market right through the large Fall runs. Current feeder cattle markets are reacting to two different economic forces – low corn prices and the potential windfall profits from the Japanese border opening.

Figure 1 summarizes the change in the corn Futures market prices during the month of October. This monthly drops in corn prices is on top of September’s monthly drop in corn prices. Since many corn elevators are already at capacity, the local corn basis is extremely wide telling farmers that elevators do not want their corn. This is a real opportunity for cattle feeders to build a cheap inventory of corn.

The potential for the Japanese border to open is adding positive price pressure to slaughter cattle prices. Figure 2 summarizes the change in live cattle Futures over the month of October. Decreasing costs of gain coupled with cattle harvest prices trending upward is a sure recipe for a strong feeder cattle market. My latest Projected Planning Prices & Management Implications System (PPP-MIS) model’s price analysis points out that 550 lb steers averaged $129 in Western North Dakota the last week Of October. Central and Western Nebraska average $136 that same week for 550 lb steer calves. This analysis suggests that the Northern Plains has a -$7 basis when compared to the Central Plains. If one thinks about it, this makes some sense as one would expect feeder cattle prices to be lower as mileage from the large commercial feedlots and/or major harvesting facilities increases.

Figure 3's planning prices suggest that backgrounded 800 feeder steers are projected to bring $115 in January 2006 or $113 in March 2006. Seven hundred lb. steers are projected to go on grass at $116 and to come off grass weighing 850 lbs around $102. Harvest cattle are projected to reach a March average of $90 and the seasonal high in April 2006 somewhere in the $94 range. By fall 2006, harvest cattle could be down to the low $80s.

The management implications of the strong cattle prices presented in Figure 3 are significant for ranchers. Four traditional marketing alternatives summarized In Figure 4 are: 1) selling at weaning, 2) backgrounding the calves to 800 lbs and selling after the first of the year, 3) finishing the backgrounded calves to 1250 lbs, and 4) retaining the calves and marketing as calf-feds at 1175 lbs. These marketing alternatives are additive.

The four traditional marketing alternatives are:

Selling at weaning: Sell 559 lb calves at weaning for $129 average is projected to net $252 dollars per cow. This is a record earned net income from beef cows.

Backgrounding: If the weaned calves are backgrounded with a $129 per Cwt price going into the lot and a $115 price coming out of lot, giving a buy/sell margin of -$14. Couple that with a cost of gain(COG) of $0.49 per lb gained, backgrounded calves are projected to add another $79 per head to net returns. With an 87% calf crop, this would add another $69 value per cow value to this Northern Plains beef cow herd. Since these marketing evaluations are additive, this rancher is projected to generate $331 ($252 + $69) earned-net-return per cow – another record.

Finishing Backgrounded Calves: These 800 lb. backgrounded feeders would go into the finishing lot at $115 and are targeted to come out the lot weighting 1250 lbs. in mid June 2006 at a projected $85 per Cwt. This would generate a buy/sell margin of a -$30 per original cwt. With a $0.53 COG, this marketing option is projected to generate a loss of $93 per head. With an 87% calf crop this would generate a loss of $81 per cow. Backgrounding and finishing together are projected to generate a loss of $16 per cow. Since these marketing alternatives are additive with the weaning marketing option, this rancher is projected to earn $236 ($252 - $16) per cow by backgrounding and finishing his 2005 calves. While not the optimum marketing alternative, I expect this to still be a record earned-net-return for this set of marketing alternatives.

Marketing as Calf-feds: These same $129 weaned calves would go into the calf-fed lot with a May 2006 target marketing date and projected to sell for $88 per Cwt generating a -$41 buy/sell margin. With a $0.47 COG this profit center is projected to net $11 per head. With an 87% calf crop, this would add $10 per cow.
These projections were all made based on $1.91 corn delivered to the feedlot and processed.

By far the biggest profits are projected to be made pre-wean ($252). The market risks associated with backgrounding your calves for an additional $79 profit maybe quite low given current conditions. In addition, this marketing alternative offers you the added potential to capture some windfall profits should the border open up by January or February 2006.

Post-wean harvesting alternatives through custom feeding facilities are not near as appealing. For many ranchers not having facilities to finish cattle, I think it makes the most sense to sell feeder calves or feeder cattle and then concentrate their management energies on how they can generate even more post-weaning pounds to market in 2006.

It probably makes a lot of sense to leave the financial risks of post-weaning harvesting opportunities to the professional cattle feeders. In the mean time, let’s hope that the Japanese border opens while you still own feeder cattle.

posted by Dr. Harlan Hughes 8:59 PM [edit]

Bred Female Sale Prices In Montana

Billings, Montana Sat Oct 29, 2005 USDA Market News

Public Auction Yards, Billings, MT
Bred Replacement Female Report for Oct 29, 2005

Montana Angus Female Bonanza II Sale.

Receipts: 2500

A large attendance for the Montana Angus Female Bonanza Sale. A very
uniform set of young females throughout the sale; many selling in load
lots or larger. Demand was very good on all ages and classes.

Bred Heifers: Medium and Large 1:

247 head 950-1050 lbs A.I. bred to have heifer calves Feb 22nd-Mar 9th
$1350.O0-$1525.00 avg $1442.51.

260 head 950-1050 lbs A.I. bred to have bull calves Feb 22nd-Mar 9th
$1400.00-$1600.00 avg $1504.69.

81 head 950-1050 lbs A.I. bred to calve Mar 6th-lOth $1350.00-$1400.00
avg $1387.04.

255 head 950-1050 lbs bred to calve Feb 26-Apr 20th $1225.00-
$1425.00 avg $1300.20.

Bred Cows: Medium and Large 1: 2 to 4 yr olds.

77 head 1025-1300 lbs bred to calve Feb 7th-28th $1425.00-$1500.00
avg $1467.21.

1240 head 1025-1300 lbs bred to calve Feb 20th-Apr 30th $1330.00-
$1475.00 avg $1417.70.

16 head Black white faced 1025-1300 lbs bred to calve Mar 1st-
Apr 30th $1275.00-$1300.00 avg $1285.94.

54 head 1025-1300 lbs bred to calve May lst-3Oth $1225.00-$1325.00
avg $1263.89.

70 head 1025-1300 lbs bred to calve Feb 1st-May 15th $1285.00.

8 head 1025-1300 lbs bred to calve after May 15th $1175.00.

Bred Cows: Medium and Large 1: 5 to 6 yr olds.

187 head 1100-1300 lbs bred to calve Mar 1st-Apr 30th $1285.00-
$1350.00 avg $1320.48.

Source: USDA Market News - Billings, MT
Lance Cline, Acting OIC 406-657-6285
www. ams . usda. gov/mnreports/BLLS75O.txt
24 hr price information 406-657-6400

posted by Dr. Harlan Hughes 11:32 AM [edit]

Japanese Market Potential

Information sources are suggesting that Japan might open its borders soon to U.S. beef. One source thought we might see U.S. beef being shipped as early as Dec 2005. (Of course, we have heard something like this before.)

He who own cattle when the border opens should gain some windfall profts from the higher cattle market. It appears that even in today's markets, that we are seeing market price strength from the possibility of the Japanese market opening. I think this explains why we have not had a weaking feeder calf market as the fall runs became heavier. My latest (30 Oct 05) market analysis shows $136 550 lb calves sold in Central/Western Nebraska.

For those of you that have not sold your calves, you might want to hold onto them until after the border opens. In my opinion the chance of a price rise exceeds any downward price risk that I can identify. After the border opens, I recommend that you re-budget your marketing opportunities before you make your marketing decisions.

posted by Dr. Harlan Hughes 8:17 AM [edit]

Tuesday, November 01, 2005


South Dakota researchers investigated the effect of size of ribeye steaks on consumer choice. Five different sizes of steaks were placed in a retail meat case. All steaks were 1.0 in thick, aged for 10 days. Average ribeye size/steak weight were: 10.7 sq in/0.54 lb; 11.8 sq in/0.65 lb; 13.5 sq in/0.70 lb; 15.3 sq in/0.76 lb; 17.0 sq in/0.78 lb. As reported in the 2000 National Beef Quality Audit, these represent the following percentages of the U.S. fed beef harvest: 5%; 27%; 43%; 21%; and 4%. Consumer preference was based on how long steaks remained in the case before being purchased. There was no significant difference among steak sizes in consumer preference; there was a slight tendency for larger steaks to be preferred. Consumers 30 to 45 years old purchased larger steaks than younger or older buyers. Steaks cut from the middle and rear (closest to the loin) of the boneless rib roll were preferred. In a second trial, comparisons were made between average steaks (13.2 sq in), large steaks (17.3 sq in), and large steaks cut in two portions. Steaks were auctioned to a group of 75 consumers. Buyers paid an average of $0.68/lb more for large over average steaks, but discounted large steaks cut in half by $0.46/lb compared to average steaks. Note: South Dakota consumers may or may not be representative of other areas. (J. Animal Sci. 83:2598)

Source: Dr. Steve Hammack, Professor and Extension Beef Cattle Specialist Emeritus, Texas A & M. published in his electronic newsletter "Beef Cattle Browsing"

posted by Dr. Harlan Hughes 9:45 AM [edit]

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