Factors Affecting Feeder Cattle Prices
(understanding the link between genetics, management, marketing, and prices)
ECON 337 Agricultural Marketing: 2:10 – 4:00; March 11, 2014
Lee Schulz – 515.294.3356 – lschulz@iastate.edu
Department of Economics
Iowa State University
Marketability: Buy and sell them “right”…
What exactly does “right” mean?
• Buy low – sell high
make lots of money!
(of course this doesn’t work for everybody as some are buying from those selling)
• As a seller, know what your buyers are looking for
and strive to deliver it to them
• As a buyer, recognize how the various traits and
characteristics are valued and buy what best fits
your program (i.e., your comparative advantage)
What drives/determines feeder cattle prices…
Breed impacts price…
Effect of Bre ed on Price
(average across weight categories and sex)
Some things
have changed
over time…
Angus
1986-1987
Hereford
BASE
1993
Angus x Herf
Other things
have been more
constant…
Other Eng X
Exotic X
Brahman < 1/4
Brahman > 1/4
Dairy
Longhorn
Mixed
-14.00
-12.00
-10.00
-8.00
-6.00
-4.00
Premium/discount, $/cwt
Sour ce: Sartw elle et al. (Kansas auctions)
-2.00
0.00
2.00
4.00
Sex and breed impacts price…
Sale
Heifer
Fall99
($6.48)
Spr00
($6.79)
Fall00
($5.50)
Spr01
($6.47)
Fall01
($7.57)
Spr02
($8.93)
Fall02
($6.60)
Spr03
($6.13)
Fall03
($6.82)
Spr04
($6.21)
Default
Black
Blk/BWF
Black
Black
Black
Black
Blk/BWF
Blk/BWF
Blk/BWF
Blk/BWF
BWF
$1.25
xxx
($0.23)
($1.48)
$0.55
$0.06
xxx
xxx
xxx
xxx
Continental
($1.71)
($5.03)
($5.53)
($1.47)
($3.38)
($3.03)
($1.33)
($2.58)
($3.35)
($2.54)
Hereford
($4.55)
($3.12)
($6.17)
($7.25)
($3.73)
($7.93)
($6.59)
($1.41)
($4.96)
($5.86)
RWF
xxx
xxx
($2.46)
($3.85)
xxx
xxx
xxx
xxx
xxx
xxx
Mix
($0.12)
($2.65)
($2.09)
($1.96)
$0.50
($1.92)
($0.35)
($1.36)
($1.90)
($0.76)
($17.92)
xxx
($17.55)
($17.17)
($16.74)
($13.11)
xxx
($13.96)
($14.07)
Other
($14.86)
Variables that are not statistically different from zero at the 90% confidence level.
Source: Holton Livestock Exchange, Inc. (Northeast Kansas)
-- Discount on heifers (vs. steers) fairly constant across sales ($5.50-$8.93)
-- Black/BWF consistently brought higher prices than other breeds/colors
B
Breed impacts price…
Price difference between Angus and Other
Price difference between Angus and Other
30
Heifers
$15.37
$16.90
$8.84
$11.71
5
$11.50
$13.04
$9.53
$13.76
10
$14.52
$16.25
15
$13.42
$16.62
$21.33
20
$28.85
Steers
25
$16.21
$17.04
$21.93
$26.76
$28.68
$17.30
$14.46
$16.33
$13.90
$11.97
5
$19.26
10
$19.69
$21.12
20
15
$24.63
$24.43
25
$11.02
$13.94
r0
8
Sp
r0
7
Sp
r0
6
Sp
r0
5
Sp
r0
4
Sp
r0
3
Sp
r0
2
Sp
r0
1
Sp
r0
0
Sp
8
Fa
ll0
6
7
Fa
ll0
Fa
ll0
5
Fa
ll0
4
Fa
ll0
3
Fa
ll0
1
2
Fa
ll0
Fa
ll0
0
Fa
ll0
9
Fa
ll9
r9
9
0
0
Sp
Angus premium, $/head
Heifers
$29.40
$32.63
Steers
$26.56
$31.80
30
35
$34.51
35
Source: CAB “Where’s the Premium” study, 1999-2008
-- Target 500 pound calves in the fall and 700 pound feeders in the spring
-- Consistent premium on Angus-influence calves and premium has generally
been trending up over this time period
Weight impacts price…
Effe ct of Weight on Price
35
P rem iu m /d isco u n t, $/cw t
30
F-99
F-00
F-01
F-02
F-03
S-00
S-01
S-02
S-03
S-04
25
20
15
10
5
0
-5
-10
-15
300
400
500
600
W eight, lb s/hea d
Source: Holton Livestock Exchange, Inc. (Northeast Kansas)
700
800
Weight impacts price…
Corn price impacts weight price relationship…
“Low” CN: FC price ↓ more rapidly as
weight ↑
Lightweight feeders worth more relative to
heavy feeders because COG lower
Live cattle price impacts weight-price relationship…
“Low” LC: FC price ↓ less rapidly as
weight ↑
Lightweight feeders worth less relative to
heavy feeders
Lotsize impacts price…
Price vs lot size -- Fall sales
Premium/discount, $/cwt
6.00
Fall99
Fall00
5.00
Fall01
Fall02
4.00
Fall03
Fall04
Fall05
Fall06
3.00
2.00
1.00
0.00
-1.00
-2.00
0
20
40
60
Lot size, number of head
Source: CAB “Where’s the Premium” study, 1999-2008
80
100
Several other factors impact price…
Feeder Cattle Trait
Frame
Large Frame
Medium Frame
Small Frame
Muscling
Heavy Muscled
Moderately Muscled
Thin Muscled
Condition
Thin Flesh
Average Flesh
Fat Flesh
Health
Healthy
Not Healthy
Uniformity
Uniform Lot
Uneven Lot
2001
2002
2003
0.174
Base
-13.642
-1.674
Base
N/A
-3.524
Base
3.154
1.986
Base
-11.391
2.035
Base
-7.224
-2.475
Base
N/A
2.731
Base
-3.024
-2.419
Base
-3.327
3.754
Base
1.025
Base
-5.789
Base
-12.115
Base
-7.82
Base
-1.948
Base
-3.154
Base
-3.174
Source: Oklahoma Quality Beef Network (OQBN) auction sales, AGEC 602
Factors impacting price change over time…
Premium of VA C 45 vs. N ot Va ccina te d or Ce rtifie d
9.00
8.00
7.91
P r e m ium , $ /c w t
7.00
6.69
6.00
5.00
5.01
4.00
4.06
3.89
3.35
3.00
2.00
3.35
3.66
3.33
2.47
1.00
0.00
1995
1997
1996
1999
1998
2001
2000
Sour ce: King and Seeger -- Superior Livestock Video Auctions
2003
2002
2004
What about preconditioning calves…
• Premiums of +$6/cwt when calves are vaccinated and weaned
• Premiums tend to be higher for steers than heifers
Source: Factors Influencing the Price of Value-Added Calves at Superior Livestock Auctions (Lance Zimmerman MS thesis, 2010 - KSU.
So does it pay to precondition calves?
What about age and source verification programs…
• Premium of around $1.50-$2.00/cwt pretty consistently over last
several years
Source: Factors Influencing the Price of Value-Added Calves at Superior Livestock Auctions (Lance Zimmerman MS thesis, 2010 - KSU.
Will premium disappear as Age & Source Verification becomes more
common?
Feeder Cattle Reports
&
USDA Feeder Cattle Grades
Frame Size and Thickness (Muscling)
USDA Feeder Cattle Grades
Frame Size
Large
USDA/MRP/AMS
Medium
Small
USDA Feeder Cattle Grades
Frame Size - Large
Tall and long bodied
½ inch fat
Steers over 1250 lbs.
Heifers over 1150 lbs.
USDA/MRP/AMS
USDA Feeder Cattle Grades
Frame Size - Medium
Slightly tall
Slightly long bodied
½ inch fat
Steers 1100 to 1250 lbs.
Heifers 1000 to 1150 lbs.
USDA/MRP/AMS
USDA Feeder Cattle Grades
Frame Size - Small
Not as tall as Medium
Short bodied
½ inch fat
Steers less than 1100 lbs.
Heifers less than 1000 lbs.
USDA/MRP/AMS
What do premiums/discounts indicate…
• Lot size and uniformity are very important
• Breed/color impact price
• Time of sale important
(probably hard to manage)
• Dehorn and castrate early
• Market healthy cattle
• Stay away from extremes
(frame, condition, fill)
• Results written up in paper
on www.agmanager.info
(and (embedded in decision tool)
http://www.agmanager.info/livestock/marketing/bulletins_2/marketing/default.asp
These three buttons
take the user to tabs
showing hedonic
model results (i.e.,
tables we have
already looked at).
These four buttons are
linked to tabs that allow
the user to examine
how changing cattle
traits impacts price.
Partial budget tab also
allows user to bring in
costs in a simplified
way.
Tab that allows three side-by-side comparisons
Impact that horns have on price…
Impact that sorting cattle into smaller (-) more
uniform (+) groups has on price…
Partial budget to look at net returns of making a
change that affects price…
Impact that a 45-day preconditioning has on
price/returns…
Partial budget to look at net returns of making a
change that affects price…
$27.54
Feeder cattle price forecasts…
Value of gain projections…
Beginning
Ending
Beginning
Ending
Weight Gain,
Value of Gain,
Date
Date
Weight, lbs Weight, lbs
lbs/head
ADG, lbs
$/cwt
01/11/14
02/24/14
550
650
100
2.27
$126.11
01/11/14
03/09/14
550
650
100
1.75
$130.73
01/11/14
04/09/14
550
750
200
2.27
$121.05
01/11/14
05/05/14
550
750
200
1.75
$127.38
01/11/14
05/11/14
550
850
300
2.50
$117.40
01/11/14
06/10/14
550
850
300
2.00
$120.81
Note: Projections derived for the Dunlap, IA market using BeefBasis.com
Related information available at BeefBasis.com
01/11/14
Historical Value of Gain…
For more information related to livestock marketing
and risk management tools see…
www.extension.iastate.edu/agdm/
www.econ.iastate.edu/margins/
Lee Schulz – 515.294.3356 – lschulz@iastate.edu
Department of Economics
Iowa State University