This month, I'll deviate from my series on the changing beef industry to discuss more immediate market concerns.

Fall cattle prices are down considerably from last year. Many beef cow producers have contacted me wondering if the beef price cycle has peaked and we've entered a period of down trending prices.

My response is twofold. First, the current price drop is demand related. Secondly, the cattle cycle effect should generate at least a couple more years of strong cattle prices before the next downturn.

The cattle cycle effect hasn't really kicked in yet, but it appears ready to. Year-to-date (as of mid-November) cattle slaughter is down 3.4%, and beef production is down 3% from a year earlier. Beef cow numbers have been decreasing since 1996, and fewer domestic calves are being born each year.

The cattle cycle's decreasing beef cow numbers implies decreasing cattle slaughter but with a lag. I project a drop in slaughter cattle marketings starting first quarter 2002.

Rain and green grass are all that's needed to trigger the cattle cycle expansion phase, which will lead to reduced heifer feeding and stronger feeder calf prices. (For a more detailed price outlook for 2001-2002 calves, see “Beef Market Advisor” posted at www.beefeconomics.blogspot.com.)

The Post-9/11 Market

This month, I will share my marketing alternative evaluation system with the idea that post-Sept. 11 marketings require a marketing re-evaluation by all ranchers. Things are not the same as before Sept. 11.

Each week this fall, I've analyzed Northern Plains sale barn prices to update optimum marketing strategies. Using USDA-reported weekly sale barn prices for the Northern Plains, I calculate a price line representing that week's average prices for alternative weights of feeder steers. Figure 1 represents this price line for Dickinson, ND, for the week of Nov. 16.

Each point depicts the average sale barn-reported price for that weight of feeder steer calves. The slope of the line illustrates the price slide for that weight of feeder calves. For example, 550-lb. steer calves averaged $91/cwt. the week of Nov. 16. At 500 lbs., the price slide was -$8.80/cwt.

My current (as of Nov. 24) fall 2002 projected price line is included in Figure 2 on page 78. In summary, I project fall 2002 feeder steer prices to be slightly stronger than fall 2001 but under fall 2000.

The fairly steep price slides are based on the relatively low costs of feedlot gains that suggest strong premiums for lightweight calves. This same projection system is used to project feeder cattle prices 12 months into the future. Figure 3 on page 78 summarizes my current (as of Nov. 24) projections for other key marketing times.

Once a rancher has developed his set of planning prices, he should use them to simulate alternative marketing programs. I've prepared production and marketing budgets used to simulate a block of traditional marketing programs, as well as two blocks of less traditional marketing programs. Only the traditional marketing alternatives are presented here.

These traditional fast-track calf options include:

  • selling calves at weaning,

  • backgrounding and selling 800-lb. feeders in early 2002,

  • finishing these backgrounded feeders,

  • calf-feds pushed hard in both the growing phase and the finishing phase in the same feedlot targeting the April 2002 seasonal price high and

  • running purchased (non-fast-track) grass steers in 2002. These grass steers are not the same fast-track steers simulated in the other marketing alternatives.

The simulated results are summarized in Figure 4 on page 78. Clearly, the largest profit is generated by selling calves at weaning. Even with weaker fall 2001 prices, profit/cow by selling at weaning is calculated at $113/cow. (This compares to $135/cow producing 2000 calves and $97 producing 1999 calves.)

This profit calculation for selling 2001 calves at weaning is based on selling 565-lb. steer calves at $94/cwt. Heifer prices were discounted $6/cwt.

Evaluating Other Options

Given the profit that could have been generated by selling at October weaning, the other alternatives are value-added profit centers.

  • Backgrounding these $93 steer calves to 800 lbs. projects to add only $4/calf more than selling in October.

    Figure 3. Feeder steer price projections
    Weight Fall '98 Fall '99 Fall '00 Fall '01 Jan '02* Mar '02* Spring '02* Fall '02*
    4.30 $84 $101 $119 $105 $106 $105 $105 $106
    4.25 $83 $99 $115 $104 $102 $101 $101 $103
    4.50 $82 $95 $112 $101 $99 $98 $98 $99
    4.75 $81 $95 $108 $99 $96 $95 $95 $96
    5.00 $79 $94 $105 $97 $93 $92 $92 $93
    5.25 $78 $92 $103 $95 $90 $89 $89 $91
    5.50 $77 $91 $100 $94 $88 $87 $87 $88
    5.75 $76 $89 $98 $92 $86 $85 $86 $86
    6.00 $75 $85 $95 $91 $84 $83 $83 $84
    6.25 $74 $87 $94 $89 $83 $81 $81 $83
    6.50 $73 $88 $92 $88 $81 $80 $80 $82
    6.75 $71 $84 $91 $87 $80 $79 $79 $81
    7.00 $70 $83 $90 $85 $80 $78 $78 $80
    7.25 $69 $82 $69 $85 $79 $78 $78 $79
    7.50 $68 $81 $88 $84 $79 $78 $77 $79
    7.75 $67 $80 $88 $84 $79 $78 $77 $79
    8.00 $66 $80 $88 $83 $79 $78 $78 $79
    8.25 $65 $79 $88 $83 $80 $78 $78 $80
    8.50 $64 $75 $88 $82 $80 $79 $79 $81
    8.75 $64 $75 $89 $82 $81 $80 $80 $82
    9.00 $63 $77 $89 $82 $83 $81 $80 $82
    9.25 $82 $77 $80 $82 $84 $83 $83 $84
    *Projected week Nov. 16, 2001
  • Finishing this backgrounded calf on $1.80 corn is projected to lose $16/head.

  • Marketing 2001 calves as “calf-feds” targeted for the April seasonal market price high is projected to added $16/head more than the weaning price.

  • The most profitable marketing alternative is buying 625-lb. calves in spring 2002 and selling them off grass as 800-lb. feeders next fall. I'm currently projecting a $76 added value with this marketing alternative.

Compare this to a $14/head loss for grazing 2000 calves in 2001 and a $17/head profit for grazing 1999 calves in 2000. Finishing these fall 2002 800-lb. grass steers to be harvested in January 2003 projects to add another $43 value to these 2001 calves.

This delayed marketing strategy for 2001 calves demonstrates the economic potential of marketing 2001 calves after the cattle cycle kicks in. Even in this post-Sept. 11 environment, there are some marketing alternatives projected to make good money.

The key to ranchers identifying these alternatives is being able to project the profit potential given today's dynamic and changing markets. The potential rewards to beef cow producers from some good old-fashioned pencil pushing have never been greater.

Harlan Hughes is a Professor Emeritus of North Dakota State University. Retired spring 2000, he is currently based in Laramie, WY. He can be reached at 701/238-9607 or harlan.hughes@gte.net.