“I have not placed a steer in my feedlot under 800 lbs. for five years,” says J.D. Alexander, a Pilger, NE, feedlot owner who also serves as vice president of the National Cattlemen’s Beef Association (NCBA). “It’s no different than changing the specifications on live-cattle contracts to reflect the current actual weights being sold, which is around 1,400 lbs. This doesn’t affect the profitability of packers or feedlots and isn’t going to negatively impact cow-calf producers. It simply reflects realities, which translates into improved accuracy when managing risk for all of us in the industry,” he says.
Alexander was explaining why NCBA supports the notion being considered by the Chicago Mercantile Exchange (CME) to increase by 50 lbs. the weights of the lightest and heaviest cattle used in calculating the CME Feeder Cattle Index.
The CME Feeder Index is used as the cash-settlement price for the CME’s Feeder Cattle Contract. It is derived from the seven-day average of Medium and Large #1 and Medium and Large #1-#2 steers weighing 650-849 lbs. sold direct or via auction, reported to the Agricultural Marketing Service – from a 12-state region. Under consideration is upping the weight range to 700-899 lbs.
Alexander’s comment also came in response to a fallacious news release distributed by the R-CALF organization that claimed, among other things, “…NCBA’s proposal would literally transfer millions, if not billions, of dollars away from feeder-cattle producers and directly to the packers and their cattle-feeding operations… NCBA’s proposal is designed to break the feeder-cattle board, causing direct financial harm to every U.S. cow-calf producer, backgrounder and stocker that markets feeder cattle.”
In fact, says Don Close, market director for the Texas Cattle Feeders Association, the change would do nothing to change the price of feeder cattle or the price distribution between weight classes.
Initially, the basis could widen to reflect the change. And, if anything, Close says more completely decoupling heavy calves from yearling feeders in the index could be supportive to calf prices.
Instead, increasing the weights included in the index makes logical sense and would more accurately reflect the reality of the marketplace. Close explains you can easily document that live weights of fed cattle have increased an average of 100 lbs. during the past five years. Part of that has to do with cattle genetics, part do to the ongoing trend for cattle to be placed in feedlots at heavier average weights.
“With nearly 40% of this nation’s corn being used for ethanol, and the impact that has on prices, for the foreseeable future, it is unlikely cattle feeders will have the incentive to aggressively place cattle at lighter weights,” Close explains.
Keep in mind, any change CME adopts must begin before contracts become active. So, the earliest the proposed weight adjustment could take place would be April or May 2012.