Market Signals Suggest Cattlemen Have Cause For Excitement

ANALYSIS - Current market positions of beef and corn are cause for excitement to the US cattle industry, say university experts.
calendar icon 30 September 2013
clock icon 4 minute read

Tight supplies of finished cattle have induced strong prices for every class of beef animal in recent weeks.

This has come at a time when the US feeder market has been buoyed by lower corn prices and news of a good harvest.

Ron Plain and Scott Brown, of the University of Missouri, confirmed that the national crop condition is 29 points better off than a year ago with 53 per cent of crops being in ‘good or excellent’ condition on 15 September.

Experts are saying that that lower corn prices should be maintained into the next crop year which will continue the lower values of the summer.

Since July, cash corn has been $2.00 lower in the Texas Panhandle and feeder prices have seen a $25/cwt lift for most weights, according to Derrell Peel, a livestock marketing specialist at Oklahoma State University.

He has said that there is ‘no doubt’ that significantly lower corn prices will impact feeder price levels and relationships.

“From a stocker perspective, the potential value of gain depends on the overall feeder price level as well as the price spread or rollback between the purchase price of the stockers and the selling price of the feeders,” said Mr Peel.

“The impact of feeder price level is well illustrated by comparing value of gain now with the feeder lows in May.”

Current expectations predict a bushel of corn to average of $4.50-5.00 next year, which Mr Peel has calculated at a feedlot cost gain of 80-90 cents/pound. This will begin to apply as the new crop is utilised in the coming weeks.

“The value of stocker gain at current markets prices is in the range of $1.10-$1.15/pound. The stocker value of gain is a reflection of the feedlot cost of gain which means that the value of gain will likely decrease some in the coming weeks,” said Mr Peel.

“This will be accomplished in the market with higher prices for light weight stockers relative to heavy weight feeders.”

The situation is not entirely clear cut but one that depends on winter grazing conditions, where corn values go and the response of stockers to the market, added Mr Peel.

This aside, the brighter outlook comes after a period of soaring feed costs and oversupply and puts US beef buyers in a tight supply picture which Mr Peel has said has been delayed.

The latest Cattle on Feed Report showed the smallest feedlot inventory for September since 2003. This followed the lowest number of placements for any August since the current reports started in 1996.

Mr Peel stressed that, by working as an interim supply measure, Mexican imports and heifer slaughter have delayed the inevitable supply shortage.

He said heifer liquidation has been driven by a delayed spring and a lack of hay while Mexican feeder cattle were bought in to ‘offset’ some of the decreased domestic feeder supplies.

This is slowing down as cow/calf producers look to retain females and Mexican imports drop.

“At the current pace, some 600 to 700 thousand head less Mexican feeders will be available in 2013,” explained Mr Peel.

This means the onus is now on a numbers response from the cow/calf sector, although this is a long term answer rather than a quick fix, say Ohio advisers.

John Grimes, a beef coordinator at Ohio State University Extension has advised cow/calf producers that ‘nearly all the market signals are there’ for expansion.

But despite downward trending feed costs and a clear need for herd expansion, Mr Grimes said that heifer retention is complex.

He has reassured farmers that the main reason for a delay is a combination of high feeder prices, feed costs and the advancing age of cow/calf producers.

Now what also faces the sector is the dilemma of whether to ‘buy or breed’ replacements. Mr Grimes said that this has to be a financial decision.

“Some believe they cannot buy genetics as good as they can raise while others need to buy outside genetics to improve their herd,” said Mr Grimes.

“Financial considerations usually dictate the approach taken as ultimately, one must decide if it is more cost-effective to produce their own replacements or to purchase them.”

Contrastingly, Mr Grimes has highlighted the opportunity of quick money to farmers looking to sell breeding stock.

He concluded that, with the US cow herd at a 60 year low, breeding females will continue improving in value.

Michael Priestley

Michael Priestley
News Team - Editor

Mainly production and market stories on ruminants sector. Works closely with sustainability consultants at FAI Farms

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