Heavier feeders raise concerns
In a recent UNL BeefWatch podcast dated Nov. 4, University of Nebraska-Lincoln (UNL) Livestock Market Risk Management Economist Elliot Dennis discusses heavier feeder cattle placements amid meat processing plant concerns.
During the podcast, Dennis highlights several key factors driving the fed cattle market.
Factors affecting the market
Dennis notes two major factors currently affecting the market are COVID-19 regulations and price of corn.
“We know that just like the flu, COVID-19 tends to spike during the winter months and unfortunately, this is when people are wanting to go out and eat,” says Dennis. “As we saw through last year, restaurants started to shut down and hamper food service demands.”
Reactions to COVID-19 measures will continue to have a large impact on meat demand. Current data suggests cattle should continue to be placed further into the future to react to the impact on meat demands, Dennis explains.
“A good example is in the October Live Cattle Contract, in which cattle were trading at about $122 per hundredweight (cwt), and the April 2022 contract was trading at $136 per cwt,” Dennis shares. “This means producers should continue to try to place animals to hit the April market.”
The second factor which affects the outcome of the fed cattle market is the price of corn.
According to Dennis, “Kansas State University releases what they call a Focus on Feedlot, which is a compilation of information from feedlots that provides consumers an idea of what they are placing and at what price,” Dennis says. “Currently, producers are experiencing a share of 2021 feed prices a little over $100 per cwt.”
He notes this is a sizeable increase in the cost of feed.
“The current corn price is the largest indicator of what feed cost is going to be like,” says Dennis.
Higher input costs can cause inflation for the producer, notes Dennis.
“We’re already seeing that in fertilizer and gas prices,” Dennis says. “What this does is raise the cost of production and shrink profit margins for producers.”
He continues, “For example, with higher fertilizer and gas prices, there is still enough margin to make profit, but it is just not going to be as large.”
He notes beef is affected by consumer income when consumers have greater total income, they have more disposable income and tend to purchase greater amounts of beef products.
“Inflation happens when consumers’ buying power decreases as cost goes up and they start to relocate their money,” Dennis notes. “One of the things they start to reallocate their money away from is beef.”
Heavier cattle incentive
“There is a large trend that has been happening and what the market is experiencing is segmentation and specialization,” shares Dennis.
Some parts of the U.S. have gone away from placing heavier cattle on the market, Dennis notes, but in some northern states, there is a large preference for placing heavier cattle.
“It’s not surprising to see 800- to 900- pound placements coming out at 1,500 to 1,600 pounds,” Dennis shares. “In a previous Cattle on Feed Report, 45 percent of all animals placed were 900-pounds or heavier.”
The preference for this weight class in the long run will result in large amounts of beef production, notes Dennis. Because of this trend, producers tend to pay more attention to the weight of calves when they are placed, typical average daily gain and harvest weight.
Understanding the dynamics
“For the feeder cattle market, understanding dynamics happening in the fed cattle market is extremely important, particularly when it comes to placement weights,” Dennis explains. “This can help producers develop a product and type of cattle to be sold in the local market.”
The time of year is dependent on what kind of cattle are placed in feedlots, but as producers place heavier animals, this will provide more incentive for larger cattle in cow/calf operations, shares Dennis.
He concludes, “There is an opportunity to develop relationships with feeders particularly placing heavier cattle.”
Brittany Gunn is the editor of the Wyoming Livestock Roundup. Send comments on this article to firstname.lastname@example.org.