Feeder cattle traits influence premiums and discounts paid under a value-based system.
Sex, weight, lot size, health, uniformity, condition, fill, muscling, frame size, breed and presence of horns all affect prices paid or received for feeder cattle.
A wide variety of characteristics affect feeder cattle prices. Obvious factors such as sex and weight have a big impact on price, but other factors can also affect prices received or paid for feeder cattle.
Good cattle managers pay attention to the values offered by the marketplace for various feeder cattle traits. They then manage their operations to take advantage of the premiums and discounts.
A number of studies have examined the factors affecting feeder cattle prices. Most conclude that sex, weight, lot size, health, uniformity, condition, fill, muscling, frame size, breed and presence of horns all affect prices paid or received.
Research also shows that discount and premium levels vary over time. Let's look at general trends affecting discounts and premiums.
Breed has a significant impact on feeder cattle price. Research indicates Angus or cross-bred Angus feeder cattle, based upon visual appraisal, receive price premiums relative to other breeds. Moreover, the marketplace's preference for cattle with Angus breeding appears to be increasing.
For example, Kansas State University (KSU) research in the mid-1980s found that straight Angus feeder steers sold at a small discount to straight Hereford cattle. This had reversed by the early '90s and straight Angus cattle sold at a small premium to straight Herefords. Oklahoma State University (OSU) research found the premium widened further by the late 1990s.
Why the shift? One likely explanation is that feeder cattle buyers are more concerned about carcass quality. They're more willing to pay for cattle based on expected carcass quality characteristics. For instance, cattle with more than 25% Brahman breeding consistently receive price discounts. Today's marketplace does differentiate between cattle with more than, and less than, 25% Brahman breeding based on visual appraisals.
The early ‘90s KSU study found that cattle with less than 25% Brahman breeding received discounts less than half those of cattle with more than 25% Brahman breeding. OSU research in the 1990s, however, found cattle of more than 25% Brahman breeding received discounts nearly triple that of cattle with less than 25% Brahman breeding.
Producers using this price information to determine which breeds fit their program should keep in mind that there can be cattle performance tradeoffs when selecting different breeds.
For example, many Southeast cattle producers find the performance benefits associated with incorporating some Brahman breeding in their cattle offset the price discounts when the cattle are sold. But, the price trends clearly show the marketplace rewards producers who have identified the minimum amount of Brahman breeding necessary to maintain cattle performance.
Frame size and muscling. Feeder cattle buyers prefer heavily muscled cattle with large frame scores. Light- and medium-muscled feeder cattle were routinely discounted by buyers relative to heavily muscled cattle.
KSU and OSU research found that cattle less than 600 lbs. and classified as light muscled were discounted $18-$26/cwt., compared to heavy-muscled cattle. Large-framed cattle, on the other hand, bring significantly higher prices than small-framed cattle. Feeder cattle buyers perceive that larger framed cattle have more growth potential and are less likely to incur packer discounts due to small carcass size.
Data suggests the discount for small- vs. large-framed cattle is increasing. Discounts for small-framed feeder steers in Kansas vs. large-framed feeder steers increased from $5/cwt. in the mid '80s to near $9 in the early '90s.
Lightweight, small-framed steers were discounted $10-$11/cwt. in both KSU studies. By the late '90s, however, OSU data found average discounts for lightweight, small-framed steers as large as $19/cwt.
Management And Nutrition
Health. Cattle buyers strongly prefer healthy cattle. Discounts for sick cattle are very large and can exceed the costs of treating those calves.
The reason is twofold. First, when purchasing sick cattle, there is an elevated risk of death loss that must be considered. Second, research suggests sick cattle, even upon recovery, won't perform as well in a feedyard as cattle that were never sick.
KSU researchers found discounts for obviously sick cattle ranged from the high $10s to the low $20s/cwt. OSU's work in the late 1990s indicates discounts for lighter weight sick cattle may be even more severe, averaging in the upper $20s/cwt.
Even cattle with less severe health problems receive sizeable discounts. For example, cattle classified as “stale” received average discounts of $5-$9/cwt. Cattle with dead hair and/or mud were discounted $1-$3/cwt.
Condition. Cattle buyers generally prefer cattle purchased in average condition. Compared to average condition cattle, discounts for fleshy cattle range from $1 for feeder weight cattle to more than $3.50/cwt. for lighter cattle.
Discounts for thin cattle, however, varied seasonally. In the spring, prices for thin cattle did not vary significantly from prices paid for average condition cattle.
However, fall prices paid for thin cattle were more likely to fall below prices for average condition cattle. KSU research from the '80s and early '90s indicates thin yearling weight cattle in the fall received discounts averaging near $2/cwt. OSU research suggests lightweight cattle received even larger discounts in the fall than yearling weight cattle, averaging $3-$4/cwt.
Discounts of thin cattle, particularly in the fall, probably relate to concerns over cattle health. Yet, both KSU and OSU research shows the discounts for thin cattle were separate from those received for sick cattle. That thin cattle discounts were larger in the fall than in spring implies buyers were concerned about cattle health during cold weather.
Buyers also tend to discount fleshy cattle. Fleshy yearling weight steers received average discounts of $1/cwt. in the spring to $2 or more in the fall. Lightweight steers received discounts ranging from $2.50 to more than $3.50/cwt. Again, discounts for fleshy yearlings were larger in the fall than in spring, perhaps due to buyer concern over the performance of fleshy cattle on high-energy diets during winter.
Weight. Differences in feeder cattle prices across weights depend on the profitability of backgrounding and finishing programs. Moreover, expected fed cattle prices, feeder cattle prices, corn prices, interest rates and feeding performance all affect cattle feeding profitability. Since these factors can vary dramatically by time period, we'll consider some general rules of thumb.
Generally, lighter weight cattle sell at a premium to heavier weight cattle. This is because the cost of 1 lb. of gain in a typical feeding program is less than the value of the gain when the steer or heifer is fed to a heavier weight.
When feed costs rise, the premium of lightweight cattle over heavyweight cattle declines. In cases when feed costs are extraordinarily high, heavyweight cattle might sell at the same price per cwt. (or even a small premium) as light cattle.
When evaluating the value of gain from a specific management practice, the value can be calculated by subtracting the value per head of the lighter weight animal from the value per head of the heavier animal. Then, to calculate the value of gain per cwt., divide the value of gain per head by the pounds gained and multiply by 100.
Doing this prevents falling into the common trap of overestimating the value of the gain from a specific practice that occurs because heavier weight feeder cattle typically sell at a lower price per cwt. than lighter weight cattle.
Lot Size. Lot size impacts feeder cattle prices big time. Buyers strongly prefer buying cattle in lot sizes that will fill a truck.
The preferred truck size seems to vary as cattle weight varies. Examining prices paid for steers weighing 600-899 lbs., the highest prices went to lot sizes of 60-80 head. This suggests buyers of feeder weight steers prefer shipping cattle in semi-trailers, perhaps to a feedyard.
But buyers of lighter weight cattle seem to prefer smaller lots. Peak prices were paid for steers marketed in lot sizes of 30-50 head when steer weight ranged from 300-599 lbs. The difference in lot size preference suggests buyers of lighter weight cattle were often located near the sale site and planned to ship cattle in either pickup trailers or a single-or tandem-axle farm truck.
The premium associated with selling cattle in buyer-preferred lot sizes is substantial. KSU research found that in the early '90s selling 300- to 599-lb. steers in lot sizes of about 40 head netted $7.50/cwt. more than if the cattle were marketed in a lot size of about 11 head. Yearling weight steers sold in the optimum lot size of about 70 head netted a price $4.50/cwt. higher than if sold in a lot size of 11 head.
Fill And Weight Uniformity. Feeder cattle marketed with above-average degrees of fill receive discounts compared to cattle with average fill. KSU research indicates yearling steers classified as “full” were discounted $1/cwt. in the early '90s compared to cattle with average fill. In contrast, 1997 OSU research showed lightweight steers and heifers classified as full received average discounts of $3 to more than $4/cwt. In both studies, cattle classified as “tanked” received large price discounts, ranging from $9/cwt. in Oklahoma (1997) to nearly $12/cwt. in Kansas (1993).
Buyers also prefer uniform lots of cattle, but price differentials offered for uniform lots seem to vary. For example, uniform lots of yearling steers in Kansas received premiums of about 50¢/cwt. compared to lots classified as not uniform. However, there did not seem to be a corresponding premium for uniform yearling heifers.
Similarly, researchers did not observe a lot premium for uniform steer or heifer calves marketed in Kansas in 1993. However, 1997 Oklahoma data suggests that lot uniformity resulted in premiums for lightweight cattle of just under $2 for steers to more than $2 for heifers.
James Mintert is a professor in the Kansas State University Department of Agricultural Economics. He can be reached at 785/532-1518; e-mail: [email protected] .