Tim petry
In the Cattle Markets
Backgrounding prospects in the Northern Plains.
Last week, three of my animal science colleagues at North Dakota State University (NDSU) and I presented an educational program by videoconference to several sites in North Dakota titled "Backgrounding Cattle 2011: Costs, Prices and Possibilities." I discussed cattle prices and outlook; Karl Hoppe, area livestock specialist, talked about feed efficiencies and feed/coproduct prices; John Dhuyvetter, area livestock specialist, presented cost of grain and budgeting; and Carl Dahlen, Extension beef cattle specialist, delivered adding value to calves through source and age verification, vaccinations, etc. Each talk was approximately 30 minutes and is available along with accompanying slides at: www.ag.ndsu.edu/cattledocs.
The prospects for backgrounding fall calves certainly improved from the end of August into October. In late August, December corn futures prices had advanced to $7.80 per bushel (bu.) and January feeder cattle prices had declined to about $134 per hundredweight (cwt.). At those prices, the futures market was offering very little incentive to feed corn to background calves.
I have a backgrounding budget spreadsheet on my website at: www.ag.ndsu.edu/livestockeconomics. My example takes 550-pound (lb.) steers to 750 lb. using about 72% corn in a ration to gain 2.77 lb. for 72 days. You can input your own prices to determine an expected profit potential. Price prospects at the end of August showed slim to negative returns for backgrounding in the Northern Plains.
However, during September, corn futures fell about $2 per bu. to $5.80. Feeder cattle futures generally increased during September, with a setback in mid-month, to end the month at about $147. With North Dakota basis levels of about minus 50¢ per bu. for corn and par for 750-lb. feeder cattle, a nice profit could be projected with 550-lb. steer calves priced at $140.
Futures market price volatility has continued in October with January feeder-cattle futures declining about $3 and then increasing $3 back to about $147 in mid-October. December corn futures have also increased back up to about $6.37. Continued volatility in both markets is expected, so price risk-management strategies may be warranted. Furthermore, January and March feeder-cattle futures are trading at a significant premium to the current cash market with the CME feeder-cattle index averaging about $137.
There is a wide range in prices of both feed and cattle geographically in the United States this year due to drought in the Southern Plains and lack of winter wheat grazing. The U.S. Department of Agriculture National Agricultural Statistics Service (USDA-NASS) reported the average price of alfalfa hay for September in North Dakota at $71 per ton compared to $249 in Texas. And, we saw $20 ranges in prices for the same weight and grade of calves at the same market in North Dakota last week due to the many factors that now affect calf value. Utilizing alternative feeds to corn, backgrounding lighter-weight steers or heifers, and factors that affect the value of calves were topics presented by the other speakers previously mentioned.
So, although backgrounding calves looks positive for those with adequate supplies of moderately priced feed, keep in mind that price volatility for both feed and cattle will likely continue.
The markets
The fed-cattle market lost a couple dollars last week in a moderate trade. Five-area fed steers on a liveweight basis averaged $119 per cwt., down $1.97 for the week. Dressed weight prices declined $2.07 for the week to average $187.81. Choice boxed beef continued to rally with the good demand for Choice compared to Select. Choice increased $1.18 for the week to close at $185.38 while Select lost $1.40. The Choice-Select spread widened $2.58 to $16.68 which is $9.53 above last year at this time and the widest spread in five years. Most feeder-cattle markets recorded $1 to $5 increases for the week. Corn prices in Omaha on Thursday (Oct. 13) were up 31¢ per bu. at $6.28. Prices for dried distillers' grains with solubles (DDGS) prices also advanced with the increase in corn prices.