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A Tale Of Two Feeder Cattle Markets: How Calves And Stockers Became Sharply Divided

Nov 08, 2016

Dr. Derrell Peel,
Oklahoma State University Extension Livestock Marketing Specialist

Oklahoma State University Extension Livestock Marketing Specialist, offers his economic analysis of the beef cattle industry. This analysis is a part of the weekly series known as the "Cow Calf Corner" published electronically by Dr. Peel and Dr. Glenn Selk. Today, Dr. Peel examines the contrast in demand that has developed in the cattle market between light and heavy weight cattle.



"Very unusual feeder cattle markets have developed this fall. The calf and stocker market has been sharply divided from the market for heavy feeder cattle. The attached summary in Table 1 shows prices, values and value of gain for steer prices in Oklahoma in the past five weeks.   

"Table 1 shows a marked contrast in calf prices from 400-550 and for feeders 600 pounds and up. For the lightweight calves, the price drop from 400 to 550 pounds (column 3) is a fairly typical price rollback, about 9-10 percent. In contrast, from 600 to 850 pounds, there is virtually no change in price…no rollback. In fact, the price of 600 pound steers is slightly less than heavier animals up to 850 pounds. A lack of feedlot and stocker demand for the middle weights is leaving prices for 550 to 750 pound steers low relative to the lighter and heavier animals on either side. As a result, the incremental value of additional weight is significantly higher at weights over 600 pounds (column 5) resulting in sharply higher value of gain at heavier weights (column 6). The general signal in this market is for cattle to remain in the country for additional weight gain before entering feedlots at heavy weights.

Table 1. Average Steer Price, Total Value and Value of Gain
(Med/Large, No. 1, Oklahoma Combined Auctions, October 7-November 4, 2016)
Source: KO-LS794, USDA-AMS; Calculations by Derrell Peel

"The current two-part feeder market has implications for cow-calf and stocker producers. Retained ownership may be attractive for cow-calf producers depending on calf weaning weights and management flexibility. At 450 pounds, the value of the first 100 or 150 pounds is relatively low because of the price rollback. Thus the initial value of gain is less than $1.00/lb. up to 600 pounds (column 6). However, additional weight beyond 600 pounds captures the higher value of gain and brings up the average or cumulative value of gain for weights up to 850 pounds (column 8). Thus, the retained decision may depend on how much additional weight can be added to the calves. For heavier weaning weights…say 600 pounds…the value of gain is high immediately for weights up to 850 pounds (column 9).


"Not only does the current market suggest stocker opportunities in general but also that the best buying opportunities are for animals somewhat heavier than typically purchased for winter grazing. The sharp price rollback (low initial value of gain) for 450 pound stockers is less attractive than buying animals at 550 pounds or heavier. For example, Table 1 shows that a 550 pound steer can be bought for less than $35/head more than a 500 pound steer (column 5).
 

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