Category: Livestock Marketing

Each year there are opportunities for producers to market feeder cattle near the high-end of the year’s market. Cattle producers will likely be marketing cattle throughout 2022 at the highest prices since, at least, January 2016. While great news, we still need a marketing plan for feeder calves. One useful method is to compare the relationship between the futures price (CME Feeder Cattle Futures) with the current market price (CME Feeder Cattle Index Price). The difference between these two prices provides the market’s expectation of price movement in the short run and expectation of market highs.  Note, this was written just prior to the market fluctuations following the beginning of the Ukraine-Russia war.

Using the current CME Feeder Cattle Index price and the August 2022 Feeder Cattle Futures contract prices, as an example (Table 1.), Friday, February 18^th’s CME Feeder Cattle Index was $162.14 per cwt (Reporting Date: 02/17/2022) and the settlement price of the August 2022 Feeder Cattle Futures Price was $186.08 per cwt.  The market’s expectation is for Feeder Cattle prices to increase from $162.14 to $186.08 per cwt. The market is pricing in a $24 per cwt, $191 per head, and $11,968 per truckload increase between now and the expiration of the August futures contract. Of course, basis adjustments may need to be made for your individual situation.

The futures market expects feeder cattle prices to increase each month during 2022.  Over the last five years, market price highs have occurred during the second half of the year, and that is expected this year, as well.

Prevatt, Chris. “Marketing Feeder Cattle at 6-Year Price Highs“. Southern Ag Today 2(10.2). March 1, 2022. Permalink

USDA’s February Cattle on Feed (COF) report will be released on Friday, February 25^th.  It’s expected to show a record number of cattle on feed in feedlots with 1,000 or more head.  The combination of fewer marketings than the year before and large placements should leave COF at 100.8 percent of the 12.106 million head on feed last February.  

Feedlot marketings should be about 2.7 percent below last year.  Given that there was one more slaughter day in January 2022 than 2021 that is a relatively low rate of daily average marketings.  Placements are expected to be about 98.9 percent of last year.  That would be a relatively large number of cattle placed.  Large placements could be driven by continued movement from drought-affected winter grazing and large sales from the Northern Plains.  Rising fed cattle prices likely encouraged placements also.  About 21,000 fewer feeder cattle were imported from Mexico in January 2022 than the year before, but about 9,000 more were imported from Canada. 

Large placements would indicate another month of pulling feeder cattle supplies forward.  While the result is more cattle on feed today, it also means fewer feeder cattle available later in the year.  The expected tighter supplies of calves and feeders are fueling optimism for much higher calf prices later this year.

Anderson, David. “Record High Cattle on Feed Expected“. Southern Ag Today 2(9.2). February 22, 2022. Permalink

The USDA-NASS Cattle report from January 2022 showed a 1% reduction of cattle grazing on small grain pastures in Kansas, Oklahoma, and Texas (1.71 million head in 2022 vs. 1.73 million head in 2021).  However, small grain pasture conditions are much worse than last year.  

Producers face challenges putting weight on stocker cattle given the overall poor condition of small grains pastures in these areas during this winter. Even though Southern Plains drought conditions improved last week, most areas are still under drought. The Southern Plains will need more moisture for 1.71 million head grazing on small grain pastures.  Although it’s likely that some of these cattle have already gone to feedlots since the inventory survey was completed.

Small grain pasture conditions have decreased considerably this year. In Kansas, winter wheat categorized in very poor, poor, and fair condition is 13 percentage points higher than last year.  Oklahoma and Texas wheat conditions are 45 and 25 points higher, respectively, for similar categories. These areas represent 91 and 84 percent of total winter wheat planted in Texas and Oklahoma.  

Grazing small grain pastures in poor condition will reduce average daily gain and might affect spring productivity. Poor grazing conditions will also increase supplemental feeding costs and mitigate future stockers’ margins.

In some areas, stockers are grazing deferred summer grasses. These cattle will probably have a lower daily gain unless supplemented. However, it will increase costs and potentially reduce spring forage supply for their cow-calf operation.  As the drought continues, it’s likely that a significant number of cattle will be sold at lighter weights and earlier in the market. 

Abello, Franisco Pancho. “Cattle Grazing on Small Grain Pastures – Challenges During this Drought Period“. Southern Ag Today 2(8.2). February 15, 2022. Permalink

One estimate that analysts like to calculate from the Cattle Inventory Report is feeder cattle supplies outside feedlots as of January 1. USDA does not report feeder cattle supplies directly, but it is easy to calculate using other categories in the report. The last row in the table listed below estimates feeder cattle supplies outside feedlots for U.S., Arkansas, Mississippi, and Kentucky, respectively. 

Using data from the table, adding Other Heifers, Steers 500 Pounds and Over, and Calves Under 500 Pounds (steers, heifers, and bulls) gives the Total Feeder Cattle Supply. Subtracting Cattle on Feed gives Feeder Cattle Supplies Outside Feedlots. As of January 1, 2022, there were 25.5 million head of feeder cattle outside feedlots, a 2.6 percent decline from last year. Arkansas had a significant decrease in feeder cattle supplies, down 9 percent year over year. In Mississippi, feeder cattle supplies were about even with the year prior, while Kentucky had a 5 percent decline. 

Why did feeder cattle supplies decline so dramatically? Strong fourth-quarter prices, coupled with drought, likely resulted in producers selling cattle that they would have otherwise kept through the winter. For example, Arkansas prices for 500-600 pound steers averaged $163/cwt for Nov-Dec 2021, or 13 percent higher year over year. These high prices provided incentives for producers to sell some cattle earlier. Cattle on feed data showed that cumulative Nov-Dec feedlot placements were 5 percent higher than 2020 placements for the same months.

Mitchell, James. “January 1 Feeder Cattle Supplies Decline 2.6 Percent“. Southern Ag Today 2(7.2). February 8, 2022. Permalink

Yesterday, the National Agricultural Statistics Service (NASS) released the biannual Cattle inventory report. This report provides a review of the changes in cattle inventory over the last year. Using the Cattle report, we can glean insight into the expected cattle supply and resulting beef supply in the near future. These supplies also inform our longer-term cattle and beef price expectations. 

The last two January reports indicated that the number of beef cows that calved declined approximately 1.6% and 1.1% in 2021 and 2020, respectively. Declines in the number of cows are followed by a decline in the number of calves and, finally, a lower beef supply; one less cow calving in spring 2020 means one less live calf placed on feed in the fall of 2020, and subsequently, there is one less fed calf available for processing in summer 2021. Lower supplies, all else equal, mean higher prices. 

Since 1990, in years when the cowherd shrank year to year the average decline in all cattle and calves was 1.2%. Yesterday’s inventory report indicated a 2% decline in all cattle and calves (from 93.8 million head to 91.9 million head), a 2.4% decline (from 30.8 million head to 30.1 million head) in the beef cow herd, and a 1% decline (from 35.5 million head to 35.1 million head) in the calf crop from 2020 to 2021. The larger drop in inventory than recent historical averages was likely a result of persistent drought across much of the western U.S. In fact, the average change in inventory in states to the west of the line including Texas to North Dakota was a loss of 2.7%, whereas the average change in inventory to the east of that line was a loss of 1.9%. A final interesting point: the number of heifers expected to calve in the upcoming year declined 3% year over year, suggesting a continued contraction in the cattle herd over the next year. The contraction in the cattle herd will support higher prices in the next year, all else equal. 

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Benavidez, Justin. “Cattle Inventory Report.” Southern Ag Today 2(6.2). February 1, 2022. Permalink