After another month of record cattle prices. I’d planned on moving to another subject in my April 2014 column, but I am compelled to the observations of my mid-month price analysis. Figure 1 presents the eastern Wyoming-western Nebraska sale-barn prices for the week of Feb. 15. All steer calves weighing less than 620 lbs. brought over $200/cwt., 800-lb. feeder steers averaged $170/cwt., and 10 head of 1,053-lb. feeder steers sold for $150/cwt.
Figure 2 presents my statistical price line for mid-month February 2014. Steer calves weighing 550 lbs. averaged $218/cwt., while 800-lb. feeders averaged $170/cwt. I don’t recall ever seeing price slides of the magnitude of the $28 for 500-lb. steer calves, $23 for 600-lb. steer calves, or even the $12 price slide for 800-lb. feeder steers. Something exciting definitely is happening in this market.
This is almost the same price line as mid-month January 2014, leading one to conclude that sale-barn prices for steers went up in January 2014 and stayed up at least through February 2014. And quality is attracting a real price premium. “Fancy” steers generated a $14/cwt. average premium for their respective weight class; conversely, “fleshy” steers suffered a $17/cwt. average discount.
But there’s more to this market price story. While eastern Wyoming/western Nebraska sale-barn prices didn’t increase from mid-January to mid-February, feeder cattle futures did move up during that period. Each bar in Figure 3 represents that month’s price increase from mid-January 2014 to mid-February. These monthly increases ranged from $1.50-$3/cwt. These increases in feeder-cattle futures were driven by the substantial increases in live-cattle futures during that one-month period (Figure 4).
Indications are that the current accelerated upward movement in live-cattle futures is driven by a low national feeder-cattle inventory and a strong beef export market. On Feb. 15, live-cattle futures closed at $142.60/cwt.
The eight-year trend line in live cattle futures (Figure 5) calculates to a 57¢/month increase, or an impressive $6.84 price-average annual increase every year, in the eight-year period (dark trend line).
Further examination of Figure 5 suggests we have a January 2014 through April 2014 price bubble for old-crop 2012 cattle with prices running $5-$10 above the eight-year trend line. Clearly, the current short supply of finished cattle in a time of strong export demand is driving up current slaughter-cattle prices.
As this year’s feeding schedule progressed, we moved cattle forward in the feeding schedule. This, in turn, makes fewer cattle available toward the end of the feeding year. This shortage is pushing near-term harvest prices up considerably (January 2014 to May 2014 in Figure 5).
Once 2013-born cattle hit the market in late spring/early summer 2014, slaughter-cattle prices are projected to move back toward the eight-year trend line — still a favorable price. The April 2015 futures price is projected at $136/cwt.
The price structure just described bodes well for cattle feeders harvesting finished cattle in mid-February 2014. Three key factors contributed to this situation:
• Calves entered the feedlot in September 2013 when feeder prices were lower.
• Couple this with a record-high market price for harvest steers and you have a very favorable buy/sell margin.
• Lower corn prices suggest lower costs of gain (COG) in the feedlot.
Add these together and you have good profits in the cattle-feeding sector.
I calculated a minus $15 buy/sell margin for steers harvested in mid-February 2014 (Figure 6, left side). Plus, lower corn prices in the last part of this feeding program reduced my COG to 89¢/lb. My calculations suggest a profit of $186/finished steer, which is even higher than for mid-January 2014 marketings.
When cattle feeders make good money harvesting cattle, they tend to bid aggressively for replacement feeders. Thus, these favorable harvesting prices generate favorable calf and feeder-cattle price projections for 2014 weaned calves.
In fact, I project record fall 2014 calf prices (Figure 7, right side). I project a fall 2014 weaning price for 550-lb. steers at $213/cwt. — up $11 from last fall. Heavyweight feeders are projected to be slightly weaker in fall 2014, but still strong by historical standards.
What does this mean for 2014 calves? With lower winter feed costs for cows, and record calf prices projected for 2014 fall-weaned calves, I project 2014 profit to be $276/cow. This figure was $186 in 2013 and $176 in 2012. I believe this projected profit per cow is large enough to trigger a significant herd expansion in those regions with ample forage production.
A review of the current U.S. drought situation suggests herd expansion may start in those regions with more normal rainfall, namely the Northern Plains, the Delta states and the Southeast. Meanwhile, drought potential exists in much of the Southern Plains, the Midwest and the West, which may work to keep many producers in these regions cautious in 2014. If and when they do expand, it will be with heifers born in 2014 or later.
Harlan Hughes is a North Dakota State University professor emeritus. He lives in Kuna, ID. Reach him at 701-238-9607 or [email protected]
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