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2010 to 2012 Arkansas Feeder Steer Prices and Feeder Futures Basis

September 13, 2013

Shane Gadberry, Associate Professor – Animal Science

Fall weaning is just around the corner. Fewer cows in the herd, larger hay supply, and news of potentially lower corn prices may be just the right combination to convince oneself to retain ownership of this years calf crop.

To help cattle producers weigh the costs and returns of retained ownership, price data from the USDA Livestock Market News Portal and nearby feeder cattle futures prices for the period of January 2010 through December 2012 were recently analyzed. The monthly price by weight group for medium and large #1 steers sold in Arkansas as well as the average basis (difference between Arkansas price and nearby feeder cattle futures) was calculated.

The feeder calf price chart below illustrates the monthly variation in price and how that month-to-month change decreased as weight class increased. Lightweight cattle tended to have the greatest seasonal variability in price. Most calves in Arkansas are born in spring, marketed in the fall at weaning, and sold through a local auction one calf at a time. The supply of heavy feeders are smaller than the lightweight supply, so cattle producers that retain ownership and plan to market calves locally need to make sure that their target market weights fit the weight criteria for the buyers. The chart below also illustrates prices are generally lowest August through October, as supplies increase with fall weaning. The price trend observed from 2010 to 2012 follows the historical trend but on a more recent price scale.

price

The stronger spring prices suggest that if calves can be wintered economically, retaining ownership of fall weaned calves could increase return. A first glance of the chart might lead someone to believe marketing lightweight calves the following spring is the way to go because these calves received the highest price. However, if one calculated the additional value of marketing at a heavier weight (but at a lesser price), it becomes evident that there was more total value in marketing the heavier calf. However, cost of gain must also be considered.

The table below shows the calculated change in value for 4 different fall and spring market weights based on the 2010 – 2012 price chart. Based on average seasonal price differences, holding calves over with little to no gain would potentially increase value up to $100 but the cost incurred during the retained ownership period would need to stay below $0.66/day. Hay cost alone can be over $0.55/day. Cattle producers that have hay to spare with no way of protecting it from weathering should factor this into the decision as well, as wasted hay is an often overlooked economic loss.

breakeven

Based on the 3-year average, adding weight by grazing cool-season forages or feeding a balanced ration could have added $50 to $200 in market value per calf. The breakeven per pound of weight gained reported in the table was based on October verses March price (approximately 150 days) and 100 to 300 pounds of weight gain. Before jumping to conclusions about the benefits of a greater breakeven associated with less weight gain, readers must be reminded that unless cattle are being limit fed a high concentrate diet, achieving 100 pounds of weight gain over 150 days may require more feed per pound of gain than achieving 300 pounds of weight gain over the same 150 days. A low quality diet that produces 0.6 lb/d weight gain may require 23 pounds of feed to produce 1 pound of body weight; whereas, a moderately-high quality diet that produces 2 lb/d weight gain may require 8 pounds of feed to produce 1 pound of body weight. When calculating a retained ownership decision, once the potential value of gain has been estimated, this estimate must be weighed against the potential cost of diets that produce slow or rapid weight gain.

As a final note, historical data is valuable for determining how different scenarios would have historically played-out, “on-average”. Feeder futures data is valuable to look at how the scenario might play-out in the upcoming market. One challenge with using feeder futures is understanding the difference between local price and futures price, especially when market weight differs from the futures 650 to 849 pound steers contract specification. The difference between auction price at a specified location and futures price is called basis. Just like historical trends for seasonal differences can be used for making decisions, historical basis can help gauge what cattle might sell for at a specified location based upon the historical basis for various weight groups. The following chart illustrates the average basis for 4 weight groups from 2010 through 2012.

basis

The September 5th Arkansas livestock market news report quoted 750 lb steers at 142.5/cwt and nearby feeder futures at 157/cwt, so the basis was, -14.5/cwt. The chart illustrates the past 3 year’s average basis at this weight equaled -18/cwt. For 450 lb steers the basis was 19.5/cwt, substantially greater than the previous 3 year average. One challenge to using basis with light cattle would be changes in demand for new crop cattle with changing economic and climatic conditions verses the demand for feedlot ready cattle. To put the use of basis into perspective, one might consider that October feeder futures are $2/cwt higher than September; therefore, 450 lb steers might bring $179 which is $2/cwt greater than the September price. The 3-year average difference between the September and October basis would suggest that 450 lb calves in October could be $4/cwt greater. March futures were at $158/cwt, the historical basis for 650 lbs steers in March was close to $0; therefore, one might expect 650 lb steers to sell locally for $158 next March. For additional risk assessment, increasing and decreasing basis for March would help indicate how sensitive returns to retained ownership would be as price adjusted for basis varied.

For information about feeding, vaccinating, and other practices to benefit the well-being of calves retained on the farm this fall for later marketing, visit your local county Extension office.

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