cattle marketing strategy tips

Figure Your Best Strategy For Marketing 2013 Calves

To discuss fall calf prices [3], let’s begin by reviewing current sale-barn prices for my study region of eastern Wyoming and western Nebraska (EW/WN). By detailing my price analysis method and results, readers hopefully can perform a similar analysis of their own local sale-barn [4] prices.

Figure 1 presents USDA’s sale barn summary for steers in EW/WN the week of Aug. 18, 2013. Figure 2 graphs the price/weight relationship for that week’s market prices, along with the trend-line equation relating price and weight.

Eastern WY & Western NE Sale Barn PricesI consider any calf price above the calculated trend line to be above-average cattle, and any price below the trend line as below-average cattle. In general, calf prices [5]were quite strong for all weights during this week. These prices were all above year-ago prices, a favorable signal.

As normally expected, calf prices [6]trended down by $11/cwt. as calf weight increased. In other words, the price slide for this week’s sale-barn prices averaged $11/cwt. more than the total weight range reported.

In practice, price slides typically aren’t constant over all weight ranges. If I calculate a statistical equation relating market price to two variables — calf weight and calf weight squared — I can generate considerable added market information with respect to the study week’s sale-barn information.

For example, I can calculate feeder steer weight in 25-lb. increments with market price, price drop (price slide), value per head, value of last pound, and a market price basis for each incremental steer weight.

Figure 3 presents the generated steer price for EW/WN sale barns for the week of Aug. 18. In practice, I graph each column in Figure 3 and study each graph, but space precludes including the graphs here. Considerable price analysis can be gleaned from Figure 3, however.
Nebraska feeder steer prices

Market prices

I also like to compare weekly sale-barn prices with that week’s midweek reported feeder-cattle futures price: $154.77/ cwt. for the week of Aug. 18. I can then calculate a market price basis to relate my EW/WN sale-barn prices to the futures market price for feeder cattle. Basis is defined as cash price minus futures price. Thus, 550-lb. EW/WN feeder steers had a positive basis of $27.57 the week of Aug. 18 (Figure 3).

Knowing the Oct. 13 feeder-cattle futures price is $159.87 allows me to project that 550-lb. steer calves in EW/WN will bring $187.44 ($159.87+$27.57) in October 2013.

Let’s calculate the sale price of 800-lb. feeder steers off grass this fall. The Figure 3 statistical equation for Nebraska sale-barn data for the week of Aug. 18 has 800-lb. steers selling for $155.96. My calculated basis for 800-lb. steers that week is a positive $1.19/cwt. Given the October feeder-cattle futures price of $155.96, my projected EW/WN October selling price for 800-lb. steers is $157.15/cwt. ($155.96+$1.19). Figure 4 presents the calculated basis [7] for alternative weights of feeder cattle.

calculated cattle basis

Basis calculation [8] plays a critical role in my projected feeder-cattle price projections for the next year. All my future projection tables are generated from this basis table and the respective months’ futures market feeder-cattle prices. Each month’s price projections are summarized in a table exactly like Figure 3. These tables give me price projections for January, March, April, September and October.

The futures market plays an important role in my price forecasting. Figure 5 presents my latest feeder-cattle futures price chart (as of Aug. 18). Because futures prices go several months into the future, my price projections also can go these same months into the future.

Feeder cattle future prices

In Figure 5, notice three items:

  • The price increase from April 13 through Aug. 13.
  • The statistical trend line suggests feeder-cattle prices rose an average of $1.17/cwt./month from 2009-2013 — an average price increase of $14/cwt./year.
  • There are seasonal price patterns around this trend line, but the long-term trend is upward.

Figure 6 presents actual 2012 prices and the actual prices for the first three critical marketing months of 2013. The last seven columns cover the rest of 2013 and all of 2014, and reveal my projected planning prices for marketing 2013 steer calves.

planning prices for cattle producers

Each line represents a different weight of feeder steer. Slaughter-cattle price [9]projections are along the bottom of the table.

What are the marketing implications for 2013 calves? The traditional marketing alternatives for my 250-cow study herd are summarized in Figure 7. I project this herd’s 2013 unit cost of producing a cwt. of calf at $165.
Given the 550-lb. weaning weight for the steer calves, I project a sale price of $183/cwt. With 44 heifers to be held back for replacements, the remaining heifer calves are sold at a projected $169/cwt. — an $18 heifer discount. The total gross income from all sales, including cull sales, is $1,025/cow.

traditional marketingThe projected earned economic net return for this herd is $102/cow (Figure 7, line 1). This compares to $171 earned net return for this herd in 2012. The lower projected net return in 2013 is due to higher winter hay prices as a result of the 2012 drought.

Backgrounding [10] these 2013 calves to 800 lbs. and selling in January 2014 projects a minus $23 buy/sell margin, a 90¢/lb. cost of gain (COG), and a $35 earned net return per head (Figure 7, line 2). Finishing these backgrounded steers in a commercial feedlot projects a negative $33 buy/sell margin, a 97¢/lb. COG, and a loss of $129/head (Figure 7, line 3).

Growing and finishing these weaned calves [11] directly into a commercial feedlot projects a negative $54 buy/sell margin, an 89¢/lb. COG, and a loss of $57 (Figure 7, line 4). This rancher needs a $4.81 price premium to break even.

Your ranch numbers will be different. Evaluate your calves’ backgrounding and finishing marketing alternatives by using your own projected backgrounding and feedlot COG and my Figure 6 numbers to calculate your buy/sell numbers. You should be able to generate your own Figure 7 numbers. See if you can beat the profitability projections [12] of my study herd.

Harlan Hughes is a North Dakota State University professor emeritus. He lives in Kuna, ID. Reach him at 701-238-9607 or [email protected] [13].


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