The Cattle Business - Tempting High Prices per Pound
Livestock Update, May 2001
Bill R. McKinnon, Extension Animal Scientist, Marketing, VA Tech
Exceptionally higher prices currently being paid for lighter weight feeder cattle in Virginia has some folks tempted to consider cashing in their fall born calves early. Certainly, prices paid for light-weight calves this spring have been at near record high levels. Some producers have assumed that prices can only go down from this level. Continued media obsession with BSE, e. Coli and foot and mouth disease has added an additional note of uncertainly to the market.
Some cattle operators have a tendency to focus too much on price per pound and not enough on dollars per head when marketing feeder cattle. In a few instances this spring we have occasionally seen some strange price relationships develop in which the marketplace basically paid the same price per head for 4-weight through 6-weight steers. Those infrequent price anomalies contribute to the inappropriate emphasis on price per pound on light-weight cattle. Table 1 below illustrates that even with wide price differentials paid for each weight cattle, heavier weight cattle bring more dollars per head.
Table 1. -- Virginia Graded Feeder Cattle Sales, April 2-7, 2001
|450 lb.||$116.29||$523||450 lb.||$95.19||$428|
|550 lb.||$104.53||$575||550 lb.||$89.27||$491|
|650 lb.||$91.98||$598||650 lb.||$82.35||$535|
|750 lb.||$84.34||$633||750 lb.||$77.83||$584|
|850 lb.||$76.86||$653||850 lb.||$73.75||$627|
Enticed by current high prices, the fall calving cow/calf operator with 400 to 550 pound calves might be considering parting with them in the spring instead of holding on to them until later in the summer. Given the producer has ample forage supplies and the calves have adequate potential for growth, history would suggest that the calves be kept on the cows until later in the summer. Monthly prices from Virginia graded feeder cattle sales for the last ten years do have a downward trend from spring into the summer and fall. Table 1 illustrates that adequate weight gains will offset the impact of reduced price per pound as the result of season and heavier weight cattle.
Table 2. -- Impact of Weight Gain and Historical Seasonal Price Change on Steer Sale Price per Head
|2.0 lb. ADG||1.75 lb. ADG|
Table 2 suggests that given past price history and performance, steers essentially increase in value by $.63 to $.80 per day. Taking into account pasture costs, interest, minerals, etc., the daily costs of keeping these calves with their mothers should run in the area of $.30 per day.
Some producers may feel that prices are simply too high this spring to pass up. Though it is always risky to predict how prices may behave even in the short run, using past price patterns may provide additional information with which to make a sound decision. One method of prediction might be to reduce the current price level for light-weight steers each month by the same percentage as the average of the past ten years. A projection of how prices might perform at this relatively high price level using this method is presented in Table 3.
Table 3. -- 2001 Projections of the Impact of Weight Gain and Seasonal Price Change on Steer Sale Price per Head Using Historical Differentials
|2.0 lb. ADG||1.75 lb. ADG|
A dollar a pound six weight steers in August may seem a little high at this point. Using basis data from August 2000, pegged 6-weight L&M1 steer basis at +$6.40/cwt. With a current August futures market at $88, that would project to $94.00 plus in the cash market. However the market moves during the next few months, producers' focus should be on dollars per head and not just price per pound. Growth and weight is still the most important factor in cattle income.