By Kenny Burdine
It seems like I could have written the same thing for each of the last three months. Heavy feeder cattle prices have held reasonably well and been supported by some significant gains in the futures’ market since early September. But the calf market has really been struggling and dropped a little further from September to October. While I can’t say for certain, I expect calf prices to increase slightly for November and the second week of this month pointed in that direction. This fall calf market has been the lowest since 2016, and prior to that, I would have to go back to 2011 to find a fall where prices were lower.
I almost always show a steer calf price chart, but wanted to talk a little bit about heifers this month. Figure 2 shows heifer prices in the same manner that figure 1 shows steer prices. For the month of October, 550 lb M/L #1-2 heifer calves were trading at a discount of nearly $17 per cwt to steer calves. The steer-heifer differential is often times discussed as a potential indicator of interest in herd expansion. Conventional wisdom would suggest that the differential would narrow as the cow-herd was growing, due to increased demand for breeding stock, and widen when the cow-herd is decreasing in size. This is largely true, but probably more so for larger heifers than for heifer calves.
Two other factors that impact this differential are the weight of the heifers and the overall level of the calf market. The reason why heifers sell at a discount to steers is lower feed conversion. Put simply, it takes more feed to add a pound of gain to a heifer than it does a steer. So, as calves increase in weight, this becomes less of an issue, and the differential tends to narrow. By the time steers and heifers reach slaughter weight, the differential is practically non-existent and steers and heifer sell for about the same price per lb.
At the same time, the steer-heifer differential tends to move with the overall calf market. As overall price levels increase, the steer-heifer differential tends to widen. The best example of this was during the fall of 2014 and spring of 2015 when this differential exceeded $30 per cwt for 5 months for 550 lb calves. During 2010, when the calf market was much lower, the differential on a 550 lb calf was just over $12 per cwt. Figure 3 shows this differential by month for 2019 and compares it to the average from 2010-2018. Note that the differential has been wider than normal since April.
Source : osu.edu