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The Cattle Business - Feeder Cattle Marketing Now and in the Future

Livestock Update, December 2000

Bill R. McKinnon, Extension Animal Scientist, Marketing, Virginia Tech

As the fall feeder cattle marketing season draws to a close, it appears as though it will have brought record high prices for Virginia producers. An early analysis of VCA sponsored sales pegs prices for L&M1 5-weight and 6-weight steers at nearly $97/Cwt. and $90/Cwt., respectively. The heifer mates should average around $85 for the 5-weights and $80/Cwt. for the 6-weights. These price levels surpass previous highs for fall prices by $2-3/cwt.

It would be easy to fall into a sense of complacency at these price levels. Calf prices at this level certainly cover cow/calf operating costs and make some payment against fixed costs. We have already seen the enthusiasm spill over into the bred heifer market with quality females bringing $900 to $1000 plus.

Most producers need to spend some time considering where and how they will be marketing their cattle 5 to 10 years from now. One issue is fairly predictable, feeder cattle prices will be relatively lower in five years. The ten-year cattle cycle is still operational. The fall of 2000 is evidence of the impact of smaller cattle numbers upon cattle prices. In five years producers across the country will have expanded herds in response to higher prices as they did every decade during the last century.

As the industry moves forward, feeder cattle producers have additional marketing options than during past cycles. More producers will retain ownership of their calves through the point of slaughter. Additionally, production/marketing alliances continue to be a more realistic option for cow/calf operators. Retained ownership and alliances will offer financial rewards to the producers of superior cattle. In addition to the above two options, cattle producers who are able to generate feeder cattle which have a proven record of above average health, growth, and carcass performance should be able to market their cattle at premium levels.

The industry is rapidly moving toward a two-tier market structure. Operators raising cattle with the genetic and health background to performance successfully in a retained ownership or alliance environment will effectively receive substantial premiums on the value of their feeder cattle. Producers marketing cattle with a proven history of superior performance on feed and on the rail will use the market place to wring out higher negotiated prices for their cattle. On the other hand, feeder cattle with no proven record will continue to be marketed "on the averages." Within the "averages" are those cattle which simply will not perform on the basis of health, growth, or carcass; and so the average price for those unproven feeder cattle must be lowered to compensate for the bottom end cattle. When the economic worth of health, growth, feed efficiency, and carcass grid conformance are calculated, the margin between the cattle that fit the target and those sold on the average can easily be $20-$30/cwt. on a 650 pound steer.

The current environment offers cow/calf operators some opportunity to plot a course for the market in the next 5 to 10 years. There is a progression of steps that operators need to take to ready themselves for the market environment ahead.

  1. Discover where is the herd is today and how much variation is present
    1. Feedlot health performance
    2. Relative feedlot growth and feed efficiency
    3. Carcass merit: marbling, cutability, weights, variation
  2. Decide upon a genetic target for the herd to fit a specific market
    1. Cow herd that fits the specific production environment
    2. Carcass quality vs. cutability target grids
    3. Decrease the variability of the cowherd
  3. Explore the available marketing options
    1. Individual marketing cattle with proven performance
    2. Team up with neighbors to market cattle with similar proven performance
    3. Retained ownership of cattle and market on specific carcass value grid
    4. Participation in production/marketing alliance that fits herd genetic base

To ignore the changing cattle marketing environment ahead is an abdication on the manager's role. It will be imperative to guide the individual operation so it can participate in the marketing arena at the upper price tier in five years. Failure to examine the available options will doom the operation to substantially lower prices at the bottom of the cattle cycle. The lack of action now is a little like not voting in an election. Without action you don't get "whining rights."

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