What’s ahead for fall calf prices?
Calf and feeder cattle prices have increased contra-seasonally about $20 to $25 per hundredweight (cwt) since mid to late May. That is especially noteworthy when fed-cattle prices were relatively stable at $120 to 125 during that same time.
Of course, the main reasons for the price increase were the prospects for a record corn crop, with lower corn prices, and much improved forage conditions in much of the U.S. from a year ago.
The three most important fundamentals that affect prices for calves and feeder cattle are the price of fed cattle, the price of corn, and the available supply of calves and feeder cattle. All three fundamentals have positive elements that will support prices at near record levels this fall.
Corn prices were record high during the first part of 2013, the result of a 2012 drought-reduced 10.8 billion bushel U.S. corn crop. The U.S. Department of Agriculture is projecting a record crop of just less than 13.9 billion bushels for this fall.
The $1 per bushel decline ($5.60 to $4.60) in December corn futures prices from late May to mid-August was supportive to all feeder cattle prices. The October feeder cattle futures contract increased $10/cwt ($150 to $160) during that same time.
The USDA’s current estimate for the average farm price of corn in the 2013-14 marketing year is $4.90/bushel, compared with this year’s estimate of $6.95. But the new crop still has a ways to go before it’s in the bin. With the current dry weather in parts of the western Corn Belt, corn prices are likely to remain volatile until the harvest is complete.
Lower beef production in the second half of 2013 will be supportive to fed-cattle prices. Fed-cattle slaughter will be lower. The USDA’s National Agricultural Statistics Service (NASS) reported that the number of cattle on feed for the slaughter market in feedlots with a capacity of 1,000 head or more was down 6 percent from last year on Aug. 1. The wild card will be cow slaughter, which will depend on weather conditions. Beef production could be down 4 to 5 percent in the second half if Mother Nature cooperates.
Fed-cattle prices were record high in 2011 and 2012, and are on track to set another record in 2013. Prices were up just 0.2 percent in the first quarter, but increased 3.3 percent in the second quarter. Prices typically increase seasonally in the second half of the year, and lower beef production will be supportive. February and April 2014 live cattle future prices are trading at $132/cwt. If those prices materialize in the cash market, fed-cattle prices will be record high in the spring and may set another record high for the year.
The first estimate of the size of the annual calf crop historically was available in the July Cattle report released by the USDA-NASS. However, due to budget restraints, that report was not released this year. So official estimates of the 2013 calf crop size will not be available until January 2014.
The 2013 calf crop likely will be 2 to 3 percent smaller than last year. Much improved U.S. moisture conditions, compared with last year, with western states being the exception, could lead to some increased beef heifer retention. That would reduce the available market supply of calves as well.
Furthermore, the number of feeder cattle imported from Mexico this year has declined and that trend is expected to continue. Through the week ending Aug. 24, 566,006 head of feeder cattle entered the U.S. from Mexico, compared with 1,028,757 head last year.
Recent improved moisture conditions and moderate temperatures in the southern wheat region are providing an opportunity for wheat producers to plant early for grazing cattle on wheat pasture. That would be supportive to prices, especially the lighter-weight calves.
So lower corn prices, higher fed-cattle prices, and a smaller supply of calves and feeder cattle will be supportive to fall calf prices. Some seasonal price weakness can be expected during the heavy marketing runs in October and November. Current fundamentals suggest calf prices will be $5 to $10 higher than last year.
Corn prices from now through harvest will be the most important factor to watch because a 10-cent change in corn prices usually reflects a $1 change in the opposite direction for calf prices.