Video auctions and CME inform producers of fall feeder prices
University of Nebraska-Lincoln (UNL) Livestock marketing and Risk Management Economist Elliott Dennis shares the feeder cattle market has experienced significant price variation this summer, with strong retail meat demand and exports.
The feeder cattle market has seen positive price movements, but drought conditions have caused feeder cattle and cull cows to market earlier than normal, and corn prices have lowered feedlot’s demand for feeder cattle.
In a recent UNL Beefwatch podcast and corresponding newsletter, Dennis explains how the increasing supply and decreasing demand of feeder cattle can result in lower feeder cattle prices, and producers can utilize video auctions and Chicago Mercantile Exchange (CME) futures to inform fall feeder cattle prices.
Venues for information
According to Dennis, the CME futures market provides prices representative of global demand for feeder cattle.
“An expected local cash price can be estimated by adding a historically observed basis to the futures price that aligns with the delivery month of interest,” he explains. “The advantage is that these price signals are available many months in advance of when production is physically sold in the cash market and offer daily price signals.”
On the other hand, Dennis says, video auctions provide more detail about cattle sold.
“These are production contracts where the buyer and seller agree on a price for a given set of cattle characteristics to be delivered at a certain month and location,” he says. “The advantage is that the cash price is known before delivery.”
Fall feeder prices
Utilizing data available through the U.S. Department of Agriculture’s Agricultural Marketing Service (AMS) form Superior, Northern, Western and Torrington Video Auctions, Dennis analyzed prices for cattle sold in the North Central Region – Colorado, Iowa, Montana, North Dakota, Nebraska, South Dakota and Wyoming – for September, October or November delivery.
In the podcast, Dennis shares, “The video market auction was pricing information and discounting lighter cattle in the 500- to 600-pound range and proving higher premiums to heavier cattle. This makes sense if a feedlot has higher corn prices, they essentially want to place heavier cattle to limit days on feed and their overall feed costs.”
Dennis’ analysis shows there are currently premiums for heavier feeder cattle coming in at the 650- to 775-pound range. This aligns with market expectations of high corn prices, with the expectation that prices will come down at harvest. The average feeder cattle prices from video auction analysis for 700- to 800-pound steers for delivery in September, October and November are $167.90, $168.59 and $169.53, respectively.
To determine Nebraska feeder cash prices for fall 2021, Dennis uses publicly reported data from CME and AMS compiled by the Livestock Marketing Information Center (LMIC).
“CME offers standardized 50,000-pound contracts for 700- to 899-pound Medium and Large Frame #1 feeder steers and 700- to 899-pound Medium and Large Frame #1-2 feeder steers within a 12-state region,” he says. “The average feeder cattle futures price in July 2021 for delivery in September, October and November was $160.22, $162.18 and $163.43, respectively.”
Comparing methods
“Across all delivery months, prices are very similar for steers,” Dennis says. “Heifers are currently more heavily discounted on the video auction relative to the futures.”
Dennis explains this may suggest the basis for the fall may be weaker than the historical basis. However, this could also be explained in that there have been few video transactions for heifers at this weight.
Averi Hales is the editor of the Wyoming Livestock Roundup. Send comments on this article to roundup@wylr.net.
