Daily News Update, Nov. 21, 2007

Feeder cattle market incentives continue to develop
By Derrell S. Peel, OSU Extension Livestock Marketing Specialist

The November Cattle on Feed report confirms the continued evolution of cattle markets in the U.S. in response to a very different and dynamic feed environment. 

October placements were up 12 percent year over year as feedlots took advantage of available supplies of heavy yearling cattle coming off of summer grazing programs.  Placements of cattle over 800 pounds were up 23 percent from last year and placements of cattle 600 to 800 pounds were up 15 percent from last year. 

I suspect that some of the 600 to 700 pound feeders and certainly most anything lighter than that would have stayed on winter pasture if forage conditions were better in the country. In Oklahoma, wheat pasture is limited, much of the state is quite dry and although considerable hay was harvested this summer, much of it is poor quality. 

All in all it isn't easy to put together a stocker or backgrounding program but the incentives to do so continue to build.

For several months we have seen the feeder cattle price/weight relationship continue to flatten out, that is to say, reduce the roll-back in price for additional weight, resulting in improved stocker buy-sell margins. 

This week's eight-market average for Oklahoma shows that the cheapest feeder steer is one that weighs about 700 pounds. Steers averaging 770 to 850 pounds were priced higher than a 725-pound steer.  In this example, there is a 50 pound window where the value of gain is $1.68/lb. 

That alone does not make a viable production program but it contributes to the fact that, in this same report, a 600-pound steer gaining about 220 pounds has an average value of gain of $1.05/lb. Obviously, it takes time to put the weight on these animals and the market price will change, but the general price relationship is likely to persist for several months at least.

This unusual feeder price relationship is occurring because 1) feedlots are demanding heavy feeders and 2) limited forage is making it difficult to put together stocker programs to meet that demand. 

The market will continue to offer incentives for forage-based gains until enough producers respond. It is not easy, or cheap, at the current time to put weight feeder cattle, but the market is offering rewards for those creative producers who find the relatively cheapest way to do it.