Supply Side Economics Continue to Support Feeder Cattle

May 10, 2011 09:14 AM
 

The opportunity to take advantage of the $0.80/bu. break in corn price between May 1st and May 6th has been shadowed by very weak live cattle futures price activity. For the first week of May, feeder cattle pricing was mixed across the country, but most sales were reported steady to slightly higher; especially early in the week.

Supply side economics continue to support  feeder cattle, as sentiment continues that feeder cattle numbers will be limited going forward.  However, weakness is present the live cattle market, especially as energy and gas prices look to remain high as we enter grilling season. Additionally, much of the country is troubled with wet weather, and until warmer springtime temperatures prevail the grilling season may be delayed. 

The price activity for the week ending May 6th was beneficial for those in the feeder cattle market, but for cattle feeders the dilemma of placing cattle below breakeven continues.  Long term the cattle market appears to be strong as exports remain strong and domestic demand remains fairly stable.  With that, economic factors such as the potential interest rate increases and inflation could slow rallies in the cattle market. 

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Weekly USDA feeder cattle prices for TX and OK were used to calculate projected breakevens on cattle bought last week, week ending May 6, 2011.  Breakevens were calculated for each weight group within sex (steer and heifer).  Ration price, $/ton dmb, was estimated at $320.  Other variables including interest, yardage and % feed financed were estimated to be 6%, $0.05/d and 100%; respectively.  As it is known that actual input estimates will vary greatly by region and by yard within region, our goal is to illustrate pricing differentials between weight classes and sexes of cattle. 

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