Cattle industry experts talk summer, fall feeder calf markets
July 8, 2016
Cattle futures don't predict the future, and neither do members of the cattle industry.
But auction market operators and ranchers are watching the market with great anticipation in hopes of catching a glimpse of what kind of cattle prices the coming months might bring.
Mitchell Livestock Auction owner Marion Rus said feeder cattle won't be moving in big numbers for a couple months and he expects six-weight steers to be in the $1.45 to $1.50 dollar per pound range.
Many producers who saved replacement heifers the past few years likely will be marketing them this year, and some prospectors who often buy heifer calves to breed might be out of the market, he believes.
But Rus doesn't suggest ranchers change their marketing plans.
"If you market in October, keep your same marketing program. If you usually wean them and sell after the first of the year, I'd stay with the same program. If you start jumping around, you start to miss market highs."
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Superior Livestock's John Beardsley, Miles City, Montana, agrees.
"There is nervousness right now. I tell people to keep on the same track — you might miss it this year (the market high), but you might make it next year. Over the long run, you should be OK."
Those producers who "take pride" in their breeding and management programs by using performance genetics and remaining faithful to vaccination protocol will be paid for it this year, said Northern Livestock Video Auction's Joe Goggins.
"There are big differences in the price right now for quality, history, consistency and weight bred in," he said. Their June video sale saw about 85 percent of the consigned calves being sold, and Goggins said there were more buyers than he expected — even some new ones — and a lot of activity as long as the price of the calves was "hedge-able," for the feeders, he said. "It was way better than I thought it would be." Calves consigned to weigh 600 pounds this fall mostly sold in the $1.41-$1.44 per pound range in the NLVA June sale.
The no-sale calves were mostly lighter calves that don't "dollar up" as well, given their weight. In the past few years, over 90 percent of the consignments will sell during any given sale, he said.
Market analyst John Nalivka said sometimes in tough market years, ranchers decide to retain ownership, hoping to add value to their calves. He cautions against that this year. "People really need to be careful about that on a year like this. If a feedlot wants to own those cattle, let them do it." Maintaining ownership longer than usual means a rancher misses the opportunity to sell at what might a profitable time, and takes on more risk than usual, the owner of Sterling Marketing said.
Steer calf prices will generally range from $750 to $850 per head while feeder cattle will generally bring $1,000 – $1,100 per head and cull cows will range near $1,000 per head, Nalivka predicts. These prices would be down 24% from last year and they compare sharply to the record prices that pushed receipts to $1,500 or more per head for calves, $1,600 for yearlings, and $1,400 for cull cows just two years ago.
Lemmon Livestock owner Paul Huffman said a lot of ranchers are hestitant to make marketing plans.
"Everyone doesn't like the market and they are not saying a word," he said.
The value of weigh-up cows is holding more steady than the fat cattle market, Huffman said, probably in part because ground beef is a such a summertime staple.
The Lemmon, South Dakota, auction market operator said his barn will offer the first big run of yearlings – weighing in the ballpark of 900 pounds – the first week of August. The buyers will be looking for cattle "at a price." But the market including buyers and sellers are somewhat unsettled at the moment, Huffman said.
"Those feeders have lost so much equity – $500 to $700 dollars per head – they will be pretty cautious."
Cattle feeder Tim Pazour, Pukwana, South Dakota echoes Huffman. "It's been really tough to be profitable or break even the last three to five years," he said. "I've got a lot of bad habits – feeding cattle is probably the worst. Drinking beer is probably the best."
Pazour buys calves at the salebarn and markets his finished cattle almost exclusively on the cash market to packer buyers.
One feeder told Pazour that in the second half of 2015, he had lost nine years of equity gained in the cattle-feeding business.
"People say 'well if you are losing money, you aren't selling them high enough.' But we don't have much say in the matter. The market is the market is the market."
Pazour said he uses hedging to protect himself, but the futures market for January 2017 and beyond are low enough that locking in a breakeven is a challenge. Still, he says, " I don't have a problem with the futures markets – you can get in and out – I have more of a problem with packer contracts. The contracts take them out of the market at certain times because they have those cattle contracted and they don't have to come to the country to bid." Pazour said he bumped into this problem just a couple of weeks ago when he had cattle finished but couldn't get a bid.
"We had trouble getting a bid on the open market. They had contracts – captive supplies or whatever they were able to pull from – we kind of missed a couple of weeks to sell and then when they came back, the price was lower."
Before the hot summer months of July and August, Pazour likes to clear out his pens as much as possible because the fat cattle don't handle extreme summer heat well.
Charolais-cross steer calves weighing 600 pounds and up from western South Dakota salebarns will likely find their way to Pazour's feedlot this fall, starting in mid-October. His goal is to have them ready to sell by June. "We're looking at a cost of gain somewhere around 70 cents per pound, and we can put on about 100 pounds per month," he said. He'll look at the June futures market and figure backward to determine his breakeven for buying calves this fall.
Huffman expects available winter wheat grazing in southern states will help drive up the price of lighter calves – those weighing 500 pounds and less.
Beardsley agrees, saying he was surprised at how many Montana calves headed to Texas last fall. He hopes those southern stockers are in the market again this fall. "They won't be buying until they have a good idea of what the wheat crop is looking like," he said.
"It's a cycle, this is just a more severe cycle than we've had before," Huffman said. He supports the Senate Judiciary committee investigation into the violent price drop over the past 18 months, but worries it won't bear fruit.
"In a perfect world, we'd sell our cattle higher and everyone would make money," said Pazour, but realistically he doesn't expect the price of fat cattle to move upward, at least not very fast. And while the price of beef for consumers hasn't dropped in comparison to cattle prices, Pazour believes it eventually will.
Goggins believes there will be a premium on both summer video sales and the fall calf runs for quality calves. "These producers who put their heart and soul into it, and really care, they'll start getting paid for it. I'm glad to see it.