Stocker prospects boost calf prices

Stocker prospects boost calf prices

Improving fall forage conditions and promising wheat pasture prospects helped boost calf and feeder cattle prices this week.
Steers sold $1-$6 per cwt higher, according to the Agricultural Marketing Service (AMS). Heifers traded mostly steady to $3 higher, except for $4-$6 higher in the North Central region.
“Long strings of yearlings are still making their way to market in the Northern Plains, as the grass has been abundant and producers have been content to watch their inventory increase in value,” say AMS analysts. “Buyers were willing to bid up to meet their procurement needs and get pens filled ahead of corn harvest.”
“Feeder cattle prices have shown strength through the summer, but seasonal pressures will likely take hold, moving prices lower in the fourth quarter,” say analysts with USDA’s Economic Research Service (ERS), in the latest monthly Livestock, Dairy and Poultry Outlook (LDPO).
“Prices typically decrease when the spring-born calves (about two-thirds of the annual calf crop) are brought to market in the fall. Assuming normal weather in the Great Plains, availability of winter forages for backgrounding could bolster prices in fourth-quarter 2018 (see Stocker opportunity looks positive below).”
ERS nudged projected feeder cattle prices slightly higher for the rest of this year and next, compared to the previous month at $148-$151 per cwt in the third quarter; $143-$151 in the fourth quarter; $139-$151 for the 2019 annual price, based on lower projected corn prices.
Cattle futures were able to retain most of the previous week’s trench-busting gains, helped along by expanding open interest.

Feeder Cattle futures closed an average of 37 cents lower week to week on Friday.
Live Cattle futures closed mixed from an average of 32 cents lower to an average of 25 cents higher.
Heading into the new week, futures will likely face some pressure from Friday’s monthly Cattle on Feed report (see below).
Fed cattle trade mainly steady
Negotiated cash fed cattle trade was a sluggish affair, remaining mostly undefined through late Friday afternoon. Live trade was reported in Nebraska at $110.00-$110.50 per cwt, which was $1 lower than the previous week. Dressed trade was steady at $175.
Similarly, late Friday, the Texas Cattle Feeders Association reported its members trading cattle at steady money of $111.
Speaking to fed cattle prices in the second half of this year, ERS analysts say, “Feedlots seem to have resisted recent lower prices from packers, which may be reflected in a greater proportion of cattle on feed over 120 days. To the extent these cattle are remaining on feed longer as producers respond to the prospects of higher future prices, there could be a shift of some marketings from the third quarter to the fourth.”
Projected fed cattle prices (Five-Area direct) in the most recent projections are $108-$111 per cwt for the third quarter and $108-$114 for the fourth quarter.
“In the first quarter of 2019, fed cattle prices could be below 2018’s. In subsequent quarters, prices are forecast to be similar to a year earlier,” say analysts with the Livestock Marketing Information Center (LMIC), in the latest Livestock Monitor. “A normal 2019 Midwest corn crop would set the stage for steady to modestly higher yearling and calf cattle prices in the second half of 2019, compared to the corresponding quarters in 2018.”
Choice wholesale beef values firm
Wholesale beef values continued looking for a seasonal bottom. Week to week, Choice boxed beef cutout value was 53 cents higher Friday afternoon at $204.80 per cwt. Select was $1.76 lower at $194.71.
“A strong domestic economy and robust exports have buffered beef, and hence, cattle prices against near record large U.S. beef production and all-time highs in competing meats and poultry supplies,” LMIC analysts explain.
“There are unknowns and potential headwinds for cattle markets during the next few years, not the least of which is the potential for U.S. beef, pork, and chicken exports to falter under a cycle of tariffs and retaliation. Also, any significant weakness in the domestic or global economy compared to the healthy conditions of the last 12 months could dampen demand for beef, and therefore cattle.”
In the meantime, LMIC analysts point out projected beef production this year of 27.5 billion pounds—assuming normal weather conditions—will be the smallest year-to-year increase since 2015 at 1-2%.
Feedlot placements higher than expected
Markets will likely view Friday’s monthly Cattle on Feed report as a touch bearish. Depending on the pre-report estimate considered, feedlot placements in August were 2-4% more than expected.
There were 2.07 million head placed in August (feedlots with 1,000 head or more capacity), which was 7.36% more (+142,000 head) than the prior year.
In terms of weights, 37.0% were placed at weights less than 700 pounds; 45.2% weighing 700-899 pounds; 17.9% weighing 900 pounds or more.
AMS analysts point out the lion’s share of increased placements were cattle weighing less than 700 pounds.
“Between the last two Cattle on Feed reports, the category under 600 pounds is 16.7% higher. The category for 600-699 pounds is 20.2% higher,” say AMS analysts.
Marketings in August of 1.98 million head were just about even with the previous year (+4,000 head).
Total cattle on feed Sept. 1 of 11.125 million head were 5.9% more (+621,000 head) than a year earlier. That’s the largest inventory for the month since the data series began in 1996.

Stocker opportunity looks positive

“There is still a likelihood that calf prices will hold steady or decline some into October, but the seasonal pressure may be muted with strong stocker demand,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “The market appears to be developing a typical fall market pattern for mid-weight steers with a sharp break on prices from 475 to 525 pounds. and prices relatively flat for steers weighing 525-700 pounds.
“Heifer calf prices continued a modest seasonal decline last week. Stocker producers should evaluate a range of possible purchase weights and look at steers versus heifers to determine the best purchase opportunity.”
With recent moisture, Peel says there’s plenty of chatter about wheat grazing prospects this winter.
“Budgets for winter grazing appear to pencil out quite attractively at this point. Feeder futures have remained remarkably strong, with March feeder futures trading near $153 per cwt at the end of last week,” Peel explains.
“With normal basis, these contract levels offer an opportunity to price spring cattle above projected break-evens for winter grazing. However, this may be a fleeting opportunity as there several factors that might drive a futures market correction. One is that current feeder price levels result in negative projected feedlot margins in coming months. The reality is that feeder cattle supplies are still plentiful.”
Running the numbers for Oklahoma, Peel says, given expected wheat price along with fertilizer and seed cost, the projected cost of wheat pasture (above other wheat production costs) is estimated at near $70 per acre.
“The cost per pound of gain depends on cattle average daily gain, number of days of grazing and wheat pasture stocking rate. Across a range of these assumptions, wheat pasture breakeven cost calculates out to a range from 30 cents to 45 cents per pound of gain for winter grazing,” Peel says.

CATTLE MARKET WEEKLY by Wes Ishmael

Calf-Feeder Trade

Regional Steer Price Average

North Central

South Central

Southeast

CME Feeder Index

CME Feeder Cattle Futures

CME Live Cattle Futures

CME Corn Futures

CME Oil Futures (WTI)