Even with some of the heaviest cattle marketing of the year, calf and feeder prices continue a contra-seasonal rally to record-setting levels (see “Tight Supplies Supercharge Calf & Feeder Prices”). That’s making it even tougher for cow-calf producers to consider holding back more replacements to grow the national herd.

Tim Petry, North Dakota State University Extension livestock economist, explains in last week’s In the Cattle Markets that several factors fuel the contra-seasonal rally:

  • “Corn futures prices staged a contra-seasonal fall rally until November, but then dropped almost $1/bu. Although still at historic high levels, the corn price decline was supportive to calf prices especially when rumors of even higher corn prices had been surfacing.
  • “Spring live cattle futures prices rallied from about $100/cwt. in October to near $110 by the end of November. A robust export demand for beef and higher byproduct values helped fuel the rally. Higher futures prices allowed feedlots to be more aggressive buyers of the shorter supply of calves that were available. Higher corn prices this year reduced the spread between calf prices and the heavier weight feeder cattle, which favored stocker and backgrounding programs.
  • “…for the first time since 2003, Canadian feedlot buyers started buying Northern Plains calves. U.S. calf prices were lower than Canadian prices. And Canadian feed barley prices did not increase to the extent that U.S. corn prices did. Large amounts of Canadian feed wheat and field peas that suffered harvest damage were available at up to $50/ton cheaper than corn in Nebraska.”
As well, Petry notes calf prices received additional spark from improved prospects for cereal pasture.

“The predicament now is that current feeder values are high and going higher, which makes it difficult to retain heifers, and yet we have to push calf prices overall high enough to make the value of future production enough to encourage heifer retention,” says Derrell Peel, Oklahoma State University Extension livestock marketing specialist.

Though the process is necessarily typical of every cattle cycle, Peel explains limited beef inventories make the tradeoff more dramatic than ever.

At the same time, even with high calf prices, Peel points out, “…the value of additional weight gain continues to be very strong, encouraging more weight gain outside of feedlots. This stocker value of gain only occurs at heavy feeder weights as there is a steep rollback in prices for feeders up to 600 lbs.”

Enhanced cow-calf values and enhanced stocker values also make forage worth more. According to Peel, this has implications on the general value of forage for both rangeland and improved pasture areas, and provides for specific regional concerns as well.

“Enhanced pasture value suggests increased forage production,” Peel says. “However, most of the discretionary pasture areas also compete with enhanced crop values, thereby limiting forage expansion.”

In areas like the southeastern U.S., Peel says high fuel prices add an additional shipping disadvantage to cattle production in the region. In contrast, raising cattle in areas such as the western Great Plains and Intermountain Rocky Mountains have a relative regional advantage in terms of production.

“These regional adjustments are long term in nature,” Peel says. “Over time, we will likely see feedlot production shift marginally back to the Midwest, while cow-calf and stocker production shift marginally more to the Central Plains and Rocky Mountain regions.”

In the meantime, the relative force of the factors Petry mentioned is diminishing. “So, the likelihood of continued increases in calf prices in the near term may be limited,” he says.

“In the longer term, prices usually increase seasonally into spring when the demand for calves for summer grazing picks up,” Petry explains. “The wild card for calf and feeder cattle prices will be corn prices, which likely will continue to be quite volatile in the next several months.”

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