Last month, I detailed how I analyze local sale barn data, and Figure 1 summarizes my latest month’s sale barn data. Sale barn prices in mid-September have weakened but are stronger than a year ago, thanks to the upward movement of cash feeder-calf prices these last few months.
The sale barn prices averaged $174/cwt. for 550-lb. steer calves, and $150/cwt. for 800-lb. feeders. My calculated heifer discount decreased to $10/cwt. for 500-lb. heifers, but some previous expansion phases have seen the heifer discount go to zero.
These sale barn prices provide price slides at each weight of feeder cattle, and can be used, along with feeder cattle futures, to calculate basis for each weight of feeder calf. These expanded basis data and the futures market were used to generate my latest suggested planning prices (Figure 7).
Beef cow producers are watching the corn and hay markets with considerable interest. The 2012 drought and record corn and hay prices drove up beef cow production costs. I calculate the breakeven calf price for 2013 calves to be $164/cwt. of steer calf sold — a record high.
Record corn prices impacted cattle feeders; they, in turn, held back feeder-calf prices. Year 2013 was a year of higher beef cow feed costs, higher feedlot costs of gain (COG), and constrained feeder-calf prices.
But there’s positive news as the 2013 growing season progresses. Corn prices have fallen from the 2012 peak. What isn’t yet clear is where 2014 corn prices will settle for the growing and finishing of 2013 calves.
Most analyses I’ve seen suggest corn prices for 2013 crop in the $4-$5 range. My current numbers for 2014 peg the corn futures price at slightly under $5. My current calculations for annual corn futures prices as of mid-September 2013 are in Figure 2.
Feedlot COG is what counts. I’m currently using a negative 20¢/bu. basis for eastern Wyoming/western Nebraska. With this basis, I have 2013 calves being grown and finished with $4.48/bu. corn for a projected COG of 95¢/lb.
This compares to a COG for growing and finishing 2012 calves of $1.14/lb., which is based on $7.12/bu. corn. This projected COG should put some badly needed profits back into the cattle-feeding sector. And a profitable cattle feeding sector is what beef cow producers really like to see.
My monthly slaughter-cattle price analysis starts with a graphical analysis of slaughter-cattle futures prices (Figure 3). These prices have trended up since 2011 and are projected to continue to do so in 2014. This analysis is based on live-cattle futures prices as of mid-September 2013.
The lowered level of beef production as the national beef cowherd expands should lead to strong slaughter-cattle prices for the next 2-3 years. In fact, I project slaughter-cattle prices to peak in 2014-2015, with the next dip going into 2018. The next dip, however, will only recede to around the 2013 average.
Beef exports are expected to be strong the next few years, though some domestic consumer resistance to increasing retail beef prices could be experienced. All in all, we should see strong slaughter-cattle prices during the next proposed beef cowherd expansion phase.
Shrinking feeder-cattle futures prices have led to increasing feeder-cattle prices. Figure 4 presents the calculated average annual feeder-cattle futures as of mid-September 2013. The trend value for these annual futures averages is $5.40/year, with 2012, 2013 and projected 2014 averages above trend value. This chart suggests strong feeder-cattle prices going into the next beef cowherd expansion.
For much of cow country, hay prices are a big determinant of winter feed costs. Hay prices, which are presented for “alfalfa” and “all other hays,” are hard to track in any logical manner. I’ve elected to present the U.S. average for “other” hay prices in Figure 5.
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Clearly, hay prices have trended up dramatically since late 2010. I calculate the hay fed to the beef cowherd in October through April as a feed charge for the following October’s weaned calves. Thus, I calculate $99 hay fed to produce 2011 calves, $137 hay to produce 2012 calves and $148 hay to produce 2013 calves. Hopefully, the price for the hay consumed to produce 2014 calves will be lower.
Each month, for 11 months prior to weaning, I project fall weaning prices. Figure 6 summarizes my 11 monthly price projections for October 2013 weaned 550-lb. steer calves. Each bar represents that month’s projection.
There’s some month-to-month variation, but that variation typically narrows as we approach the October target month. For example, November 2012’s projection was the lowest at $180, while March 2013 was the highest for October’s price at $194. After that, the variation begins to moderate, with the latest two projections in the $187-to-$190 range. This month’s projection is $189/cwt. for steer calves in October 2013.
Figure 7 expands this month’s projections for alternative feeder-steer weights and for selected critical marketing dates through weaning in 2014. This table should allow readers to determine a set of buy/sell planning prices for almost any marketing alternative under consideration for 2013 calves. Use my buy/sell prices and your COG. Note that the bottom two lines on Figure 7 suggest slaughter-cattle planning prices.
Figure 8 applies these planning prices to my example herd of 250 cows projected to wean 569-lb. steer calves in October 2013. Four alternatives are summarized:
- Selling at weaning
- Backgrounding the weaned calf
- Finishing the backgrounded calf in a custom lot
- Growing and finishing the calf in a custom feedlot
Perhaps this is the year to wean and background my calves. I’ll re-evaluate my finishing options as I near the Jan. 15 marketing date for my backgrounded steers.
Harlan Hughes is a North Dakota State University professor emeritus. He lives in Kuna, ID. Reach him at 701-238-9607 or firstname.lastname@example.org.
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