The summer 2013 rally in calf and feeder cattle prices puts cowmen in an enviable position this fall. Calves and feeder cattle are hot commodities, and market fundamentals going forward suggest that trend will continue.
The contra-seasonal price rally has added $20 to $25 per hundredweight to steer calves and feeder cattle since late May. That’s $100 to $200 additional per head, and much of that gain is attributable to improved growing conditions for corn and forage this year. Specifically, the U.S. Department of Agriculture and most analysts have forecast a record corn crop for 2013, and the price of that feed grain has declined accordingly.
Tim Petry, North Dakota State Extension Livestock Economist, says the three most important fundamentals that affect prices for calves and feeder cattle are, "the price of fed cattle, the price of corn, and the available supply of calves and feeder cattle. All three fundamentals have positive elements that will support prices at near record levels this fall."
Last year’s drought held corn prices at near-record high levels at the start of 2013, but USDA’s projections call for nearly a 13.9 billion bushel crop this year. As a result of the expected bin-buster, new-crop corn Dec corn futures declined $1 per bushel from late May to mid-August ($5.60 to $4.60), resulting in a $10 per hundredweight increase in Oct feeder cattle futures ($150 to $160).
The rally in feeder cattle and calves this year occurred despite a fed cattle market that held mostly steady in the $120 to $125 per hundredweight range. Petry says that’s noteworthy because fed cattle prices are expected to trend higher this fall.
"Lower beef production in the second half of 2013 will be supportive to fed-cattle prices," Petry says. "Fed-cattle slaughter will be lower. The USDA’s National Agricultural Statistics Service (NASS) reported that the number of cattle on feed for the slaughter market in feedlots with a capacity of 1,000 head or more was down 6 percent from last year on Aug. 1. The wild card will be cow slaughter, which will depend on weather conditions. Beef production could be down 4 to 5 percent in the second half if Mother Nature cooperates.
Petry believes fed cattle prices could challenge record highs next year.
"Fed-cattle prices were record high in 2011 and 2012, and are on track to set another record in 2013," he says. "Prices were up just 0.2 percent in the first quarter, but increased 3.3 percent in the second quarter. Prices typically increase seasonally in the second half of the year, and lower beef production will be supportive. February and April 2014 live cattle future prices are trading at $132/cwt. If those prices materialize in the cash market, fed-cattle prices will be record high in the spring and may set another record high for the year.
The bottom line: lower corn prices, higher fed-cattle prices and a smaller supply of calves and feeder cattle will be supportive to fall calf prices, Petry says. Some seasonal price weakness can be expected during the heavy marketing runs in October and November. Current fundamentals suggest calf prices will be $5 to $10 higher than last year.