April 6, 2020
Editor’s note: Harlan Hughes wrote this article just as the cattle markets began to react to the spread of COVID-19. Thus, the data and projections do not reflect the volatility that has occurred in the futures markets and the drop in cash prices for calves, feeder cattle and fed cattle. As of press time, it’s impossible to speculate on how long COVID-19 will continue to affect markets. But we can say that the fear and uncertainty the virus has caused in world markets will subside, and that markets will regain stability and return to normal. Stay tuned.
During this last cycle, my study herd manager had a history of marketing his calves at fall weaning time. He put his feed and energy in wintering the cow herd, developing his replacement heifers and spring-calving the next calf crop.
In the last few months, he has spent considerable office time evaluating different marketing strategies for the next cycle. This included spending some travel time visiting custom feedlots trying to evaluate the potential for custom feeding some of his future calf crops.
February’s business meeting. As we normally do, the February meeting started out studying market prices for the most current local weekly action market. USDA publishes a weekly market summary for the local sale barn (Figure 1.) The downward sloping regression line shows the price drop as weights went up. The line represents the drop in steer calf prices over the total weight range. That average trend drop is $18.90 per cwt of added weight.
What stands out in Figure 1’s prices is the wide variation of prices around the red line. The distance of the dots from the line represents price premiums and price discounts. This market certainly seemed to have a lot of variation in the quality of feeder steers being sold.
I decided to document the price premiums and discounts in his market for mid-February. USDA Agricultural Marketing Service labels some of the feeder cattle batches being sold as Fleshy, Fancy or Unweaned. I can use statistics to calculate the dollar impact for those different labels, and I did that for this week’s feeder steers.
Feeders labeled Fleshy by the market reporter sold for an average of $10.86 per cwt lower. Those labeled Fancy by the market reporter sold for an average $4.78 per cwt higher. Those feeders labeled Unweaned by the market reporter sold for an average of $12.85 per cwt lower. Yes, how feeders are marketed makes a big difference; and you, as a beef cow producer, have considerable control over how your feeders are marketed.
Let’s look forward at feeder cattle prices. If we are going to conduct some market planning for 2020, we need to look at feeder cattle prices down the road. My local price forecasts are based on the Feeder Cattle futures as of mid-February. I generate the chart in Figure 2 each month before I write my column.
Figure 2 presents the mid-February 2020 price trend for Feeder Cattle futures prices. Two trends stand out in Figure 2. First, feeder cattle futures prices are trending upward both in mid-January and again in mid-February, but all mid-February prices were below mid-January.
I watch September futures for marketing 2020 cattle off grass, and grass cattle were looking favorable in mid-February 2020. I watch October futures for marketing weaned 2020 spring-born calves — again, looking more favorable than in 2019 as of mid-February. Both of these planning prices are suggesting the start of a new cattle price cycle.
The differences between the gold and red bars in Figure 2 give a general direction of a year’s price changes over the last 30 days. I study the monthly changes and the yearly trend change, always looking at target months that my study herd manager might market feeders.
For example, as this was being written, marketing steers off grass in September this year should be more favorable than marketing steers off grass in September last year. Selling weaned calves in October this year should be more favorable than selling them in October last year. The price trend for 2020 appears to be stronger than what we experienced in 2019.
Live Cattle futures also suggest some insights in slaughter cattle prices down the road (Figure 3). Two things stand out in this Live Cattle chart.
First, slaughter cattle futures prices tend to follow a seasonal pattern triggered by the fact that most cows are calved in spring months. Second, Figure 3 suggests a slightly higher spring 2021 price peak over spring 2020 — an early suggestion of a start to the next beef price cycle.
Higher Live Cattle prices tend to occur in the early months of the year, with a typical summer low. Most spring-born calves tend to be finished in the next year’s summer months, generating the price lows. Yearlings off grass tend to finish shortly after the first of the year at a time of better slaughter prices.
I frequently write about trying to finish spring-born calves in May instead of June, knowing very well that this is a difficult goal. Maybe early weaning into a feedlot is the answer? Maybe fall calving would generate a better finishing date? Finishing in midsummer just tends to hit some lower prices.
Regardless of who owns them, when do your calves finish?
Suggested planning prices. Figure 4 presents my mid-February 2020 suggested planning prices through fall weaning 2020. Note the top two-thirds of the table covers feeder cattle prices, and the rows beginning “Slaughter” and “Futures months” cover slaughter cattle prices. The next-to-the-bottom line covers Nebraska slaughter cattle basis. The bottom line pertains to grass cattle going on grass, coming off grass, and my calculated marketing loss per cwt on the original weight going on grass.
In general, fall 2020 prices are projected slightly higher than last fall as of mid-February, suggesting the beginning of the new beef price cycle. Five-hundred-fifty-pound steer calves in fall 2020 are projected $7 higher than in fall 2019.
The bottom line presents my mid-February projections for grass cattle, the highlight of this month’s projections. The first number is my projected price onto grass, and the second number is the projected price off grass. The red number in Figure 4 is the marketing loss per cwt on original weight going on grass. I have grass costs the same for both years.
I am projecting a much smaller price drop in 2020 between the price going on grass and the price coming off grass. The net result is that my current projection is a $100-plus net return from grass cattle in 2020. I hope this holds!
Hughes is a North Dakota State University professor emeritus. He lives in Kuna, Idaho. Reach him at 701-238-9607 or [email protected].
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