Producers and bankers have contacted me for my thoughts on fall 2002 calf prices. Market prognostication is a tricky process, even without the heightened uncertainty settling in on today's cattle markets.

During the turn-around phase of the cattle cycle, which we are in currently, the previous year's marketing experience is of little or no value in designing this year's marketing program.

Today's markets are changing so fast that I'll focus this month's column on my current, short-run market price analyses. I'll begin with my short-run price projections for 2002 calves and use these prices to evaluate alternative strategies for marketing 2002 calves. I'll then describe two key factors influencing the economics of these marketing alternatives. Finally, I'll present a sneak preview of fall 2003 price projections.

My current, price-line projection for fall 2002 is presented in Figure 1. Each point on this price line is my price forecast for a specific weight of feeder steer.

This graphic enables you to identify the appropriate price for the calf weight you'll produce this fall. The slope of the price line between any two points gives the average price slide for that weight of feeder steer.

Fall 2002 price projections for 500- to 600-lb. steer calves are in the $81-$84/cwt. range (marked in yellow in Figure 1) for the Northern Plains. You'll notice it's down $10-$13 from fall 2001 prices (Figure 2). These planning prices suggest a $61 profit/cow from my demonstration cowherd from selling 2002 calves at weaning.

My demonstration herd has a 90% calf crop weaned and a production cost of $70/cwt. of calf. This compares to a $113 profit/cow for this same herd selling 2001 calves at weaning and $124/head for this same herd selling 2000 calves at weaning. Profits from selling 2002 calves at weaning are projected to be about half of 2000's high.

Figure 2 presents actual fall price lines for 1998 to 2001 and puts the projected fall 2002 price line in perspective with these previous years. Fall 2002's price line is situated above fall 1998's price line and below fall 1999's price line.

2002 Calf Strategy

Given these relatively low projected calf prices, should a rancher sell at weaning or hold his 2002 calves? Table 2 presents my projected planning prices for evaluating alternative strategies for marketing 2002 calves. Figure 3 presents my current planning prices for corn grain. I integrated these two sets of planning prices into a set of production budgets designed to evaluate several traditional marketing alternatives for 2002 calves.

My study suggests this might be the year to delay marketing your 2002 calves until 2003 when stronger prices are projected (Table 1, center box).

  • Backgrounding 2002 calves with a high average daily gain (2.5 lbs/day) then marketing in January 2002 is projected to generate an added $21 profit/head above the $61/cow projected for selling at weaning.

  • Growing and finishing 2002 calves in a retained ownership enterprise is projected to generate an added $55 profit/head above the original $61 at weaning.

Combining the projected weaning profits ($61/cow) and the projected retained ownership profits ($55/head) gives a projected weighted profit potential of approximately $116/cow for this herd. This herd has a 90% calf crop and $70 unit cost of producing a cwt. of calf.

Other Influential Factors

Two factors heavily influencing the current cattle market are record-high meat production and the continuing drought in the U.S. and Canada.

As I write this in late June, we've just completed a six-year high in weekly beef production. This comes after a record April beef production of 2.19 billion lbs.-13% larger than April 2001. Add in record pork production, and April set a new meat production record of 3.9 billion lbs.

James Mintert, Kansas State University economist, reports beef production during the first half of 2002 was 4.6% higher than in 2001. When Nevil Speer of Western Kentucky University plugs the current total meat production levels into his predictive equations, he concludes that total meat supply (beef, pork and poultry) and beef by-product values go a long way toward explaining today's cattle prices.

In fact, the Livestock Market Information Center, Denver, CO, says “Our price problem seems to be from the supply side and not consumer demand.” We are simply awash in meat.

I also believe the current price downturn is heavily drought-driven. Once the drought passes, we should see heifer retention trigger a cattle cycle price kick. As heifers are diverted from feedlots to the breeding herd, feeder cattle prices should again strengthen.

The biggest marketing challenge is figuring out when the drought will end and drought-stressed ranchers will begin to repopulate their herds.

I currently project a price kick from 2003 heifer retentions triggered by ranchers' post-drought repopulations. Tax laws should motivate any rancher that depopulated in year 2000 to repopulate in 2003, or they will need to pay income taxes on those 2000 drought-induced sales.

As a result, fall 2003 (or maybe fall 2004) calf prices should approach fall 2000's cattle cycle highs. This suggests a double price top for this cattle cycle. My current fall 2003 projected price line is in Figure 2.

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.

Table 1.
Traditional marketing alternatives
(2001 calves)
Traditional marketing alternatives
(2002 calves)
Traditional marketing alternatives
(2003 calves)
Marketing strategy Buy/sell margin Cost of gain (COG) Profit/head Marketing strategy Buy/sell margin Cost of gain (COG) Profit/head Marketing strategy Buy/sell margin Cost of gain (COG) Profit/head
Sell at weaning XXXXX $0.70 $113 Sell at weaning XXXXX $70 $61 Sell at weaning XXXXX $70 $122
Bckg high ADG -$14 $0.45 $7 Bckg high ADG -$8 $0.45 $21 Bckg high ADG -$8 $0.50 $44
Fin bckg steers -$15 $0.48 -$57 Fin bckg steers -$9 $0.52 -$6 Fin bckg steers -$11 $0.49 $36
Grow & finish -$29 $0.40 -$13 Grow & finish -$15 $0.44 $55 Grow & finish -$19 $0.41 $111
Steers on grass -$14 $0.45 -$33 Steers on grass Steers on grass
Fin grass steer -$8 $0.49 $17 Fin grass steer Fin grass steer
Projected week of June 28, 2002
Table 1.
Suggested Planning Prices Projected
lbs. Fall '00 Mar '01 Spring '01 Fall '01 Jan '02 Mar '02 Spring '02 Current
June 28, '02
Fall '02 Jan '03* Mar '03* Spring '03* Fall '03*
425 $115 $117 $117 $104 $109 $128 $106 $89 $86 $86 $85 $85 $98
500 $105 $110 $109 $97 $100 $114 $99 $87 $84 $84 $83 $83 $96
600 $96 $102 $100 $91 $91 $99 $91 $84 $81 $93 $80 $80 $93
700 $86 $93 $92 $86 $84 $87 $84 $81 $78 $78 $77 $77 $90
800 $88 $85 $85 $83 $79 $79 $77 $77 $74 $74 $73 $73 $86
900 $89 $78 $79 $82 $77 $74 $72 $73 $70 $70 $69 $69 $82
Slaughter $70 $78 $73 $65 $70 $68 $65 $64 $67 $67 $69 $74 $77
*Projected week June 28, 2002 with slaughter basis included