The cattle market ended the week of June 24th strong with live cattle trade $2/cwt higher and $6/cwt higher for the last two weeks.
Accompanying this rally, corn futures have plummeted approximately $0.75/bu (basis December 2011). The deterioration of corn price equates to a decrease in costs of gain for steers and heifers of approximately $6.10/cwt and $6.50/cwt, respectively.
During the same two week period feeder prices have exploded in the cash and futures market. Lack of supply continues to a primary topic of discussion associated with the rally, but also the reality of improved feeding economics and bullish market sentiment for the fourth quarter of 2011 and beyond has spurred the feeder market strength.
Seasonally the feeder market remains strong through the end of the summer, however; given the volatility in all markets it would not be surprising to see a correction in the feeder market. Especially as the futures market had opening trade price gaps for three days in row beginning June 16th, 2011. Technically this creates a situation where price should attempt to fill these gaps. If this occurs this could take price to the $130 levels (basis August 2011).
The grain markets have been under considerable pressure most of June--the futures market has declined approximately $0.75/bu since June 10, 2011. Favorable weather throughout the corn belt and slowing export demand have been discussed as culprits for the decline in price. With that being said, it cannot be ignored that our current stocks to usage ratio is as low as it has ever been and the number of lost acres from flooding are not yet known. Although growing conditions are favorable today, it will take a substantial crop to cover our grain needs going forward.
Weekly USDA feeder cattle prices for TX and OK were used to calculate projected breakevens on cattle bought last week, week ending June 24, 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.