Factors Affecting Feeder Cattle Prices (understanding the link between genetics, management, marketing, and prices) ECON 337 Agricultural Marketing: 2:10.

Factors Affecting Feeder Cattle Prices(understanding the link between genetics, management, marketing, and prices)

ECON 337 Agricultural Marketing: 2:10 – 4:00; March 11, 2014

Lee Schulz – 515.294.3356 – lschulz@iastate.eduDepartment of EconomicsIowa State University

• Buy low – sell high make lots of money!

• As a seller, know what your buyers are looking for and strive to deliver it to them

• As a buyer, recognize how the various traits and characteristics are valued and buy what best fits your program (i.e., your comparative advantage)

What exactly does “right” mean?

(of course this doesn’t work for everybody as some are buying from those selling)

Marketability: Buy and sell them “right”…

What drives/determines feeder cattle prices…

Angus

Hereford

Angus x Herf

Other Eng X

Exotic X

Brahman < 1/4

Brahman > 1/4

Dairy

Longhorn

Mixed

-14.00 -12.00 -10.00 -8.00 -6.00 -4.00 -2.00 0.00 2.00 4.00

Premium/discount, $/cwt

1986-1987

1993

Source: Sartwelle et al. (Kansas auctions)

Effect of Breed on Price(average across weight categories and sex)

BASE

Some things have changed over time…

Other things have been more constant…

Breed impacts price…

Sale Fall99 Spr00 Fall00 Spr01 Fall01 Spr02 Fall02 Spr03 Fall03 Spr04 Fall04Heifer ($6.48) ($6.79) ($5.50) ($6.47) ($7.57) ($8.93) ($6.60) ($6.13) ($6.82) ($6.21) ($7.60)

Default Black Blk/BWF Black Black Black Black Blk/BWF Blk/BWF Blk/BWF Blk/BWF Blk/BWF

BWF $1.25 xxx ($0.23) ($1.48) $0.55 $0.06 xxx xxx xxx xxx xxx

Continental ($1.71) ($5.03) ($5.53) ($1.47) ($3.38) ($3.03) ($1.33) ($2.58) ($3.35) ($2.54) ($3.69)

Hereford ($4.55) ($3.12) ($6.17) ($7.25) ($3.73) ($7.93) ($6.59) ($1.41) ($4.96) ($5.86) ($8.75)

RWF xxx xxx ($2.46) ($3.85) xxx xxx xxx xxx xxx xxx xxx

Mix ($0.12) ($2.65) ($2.09) ($1.96) $0.50 ($1.92) ($0.35) ($1.36) ($1.90) ($0.76) ($1.86)

Other ($17.92) xxx ($17.55) ($17.17) ($14.86) ($16.74) ($13.11) xxx ($13.96) ($14.07) xxx

Variables that are not statistically different from zero at the 90% confidence level.

Source: Holton Livestock Exchange, Inc. (Northeast Kansas)

-- Discount on heifers (vs. steers) fairly constant across sales ($5.50-$8.93)

-- Black/BWF consistently brought higher prices than other breeds/colors

Sex and breed impacts price…

Price difference between Angus and Other

$13.76

$13.04

$11.71

$16.25

$16.90

$21.33

$31.80

$32.63 $28.85

$9.53

$11.50

$8.84

$14.52

$15.37

$16.62

$26.56

$29.40

$13.42

0

5

10

15

20

25

30

35

Spr99

Spr00

Spr01

Spr02

Spr03

Spr04

Spr05

Spr06

Spr07

Spr08

Steers Heifers

Source: CAB “Where’s the Premium” study, 1999-2008

-- Target 500 pound calves in the fall and 700 pound feeders in the spring

-- Consistent premium on Angus-influence calves and premium has generally been trending up over this time period

Price difference between Angus and Other

$13.94

$19.26

$24.43

$16.33

$24.63

$21.12

$28.68

$26.76

$34.51

$11.02

$11.97

$13.90

$14.46

$17.30

$19.69

$17.04

$21.93 $16.21

0

5

10

15

20

25

30

35

Fall9

9

Fall0

0

Fall0

1

Fall0

2

Fall0

3

Fall0

4

Fall0

5

Fall0

6

Fall0

7

Fall0

8

An

gu

s p

rem

ium

, $/

hea

d

Steers Heifers

Breed impacts price…

300 400 500 600 700 800

Weight, lbs/head

-15

-10

-5

0

5

10

15

20

25

30

35

Pre

miu

m/d

isco

un

t, $

/cw

t

F-99

S-00

F-00

S-01

F-01

S-02

F-02

S-03

F-03

S-04

Effect of Weight on Price

Source: Holton Livestock Exchange, Inc. (Northeast Kansas)

Weight impacts price…

Weight impacts price…

“Low” CN: FC price ↓ more rapidly as weight ↑

Lightweight feeders worth more relative toheavy feeders because COG lower

Corn price impacts weight price relationship…

“Low” LC: FC price ↓ less rapidly as weight ↑

Lightweight feeders worth less relative toheavy feeders

Live cattle price impacts weight-price relationship…

Price vs lot size -- Fall sales

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

0 20 40 60 80 100

Lot size, number of head

Pre

miu

m/d

isco

un

t, $

/cw

t

Fall99 Fall00

Fall01 Fall02

Fall03 Fall04

Fall05 Fall06

Source: CAB “Where’s the Premium” study, 1999-2008

Lotsize impacts price…

Feeder Cattle Trait 2001 2002 2003

Frame Large Frame 0.174 -1.674 -3.524 Medium Frame Base Base Base Small Frame -13.642 N/A 3.154Muscling Heavy Muscled 1.986 2.035 -2.475 Moderately Muscled Base Base Base Thin Muscled -11.391 -7.224 N/ACondition Thin Flesh 2.731 -2.419 3.754 Average Flesh Base Base Base Fat Flesh -3.024 -3.327 1.025Health Healthy Base Base Base Not Healthy -5.789 -12.115 -7.82Uniformity Uniform Lot Base Base Base Uneven Lot -1.948 -3.154 -3.174

Source: Oklahoma Quality Beef Network (OQBN) auction sales, AGEC 602

Several other factors impact price…

2.47

3.353.89

3.35 3.333.66

4.06

5.01

6.69

7.91

19951996

19971998

19992000

20012002

20032004

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

Pre

miu

m, $

/cw

t

Source: King and Seeger -- Superior Livestock Video Auctions

Premium of VAC 45 vs. Not Vaccinated or Certified

Factors impacting price change over time…

So does it pay to precondition calves?

Source: Factors Influencing the Price of Value-Added Calves at Superior Livestock Auctions (Lance Zimmerman MS thesis, 2010 - KSU.

• Premiums of +$6/cwt when calves are vaccinated and weaned• Premiums tend to be higher for steers than heifers

What about preconditioning calves…

Will premium disappear as Age & Source Verification becomes more common?

• Premium of around $1.50-$2.00/cwt pretty consistently over last several years

Source: Factors Influencing the Price of Value-Added Calves at Superior Livestock Auctions (Lance Zimmerman MS thesis, 2010 - KSU.

What about age and source verification programs…

Feeder Cattle Reports&

USDA Feeder Cattle GradesFrame Size and Thickness (Muscling)

USDA/MRP/AMS

USDA Feeder Cattle Grades

Frame Size

Large Medium

Small

USDA/MRP/AMS

USDA Feeder Cattle Grades

Frame Size - Large

Tall and long bodied

½ inch fat

Steers over 1250 lbs.

Heifers over 1150 lbs.

USDA/MRP/AMS

USDA Feeder Cattle Grades

Frame Size - Medium

Slightly tall

Slightly long bodied

½ inch fat

Steers 1100 to 1250 lbs.

Heifers 1000 to 1150 lbs.

USDA/MRP/AMS

USDA Feeder Cattle Grades

Frame Size - Small

Not as tall as Medium

Short bodied

½ inch fat

Steers less than 1100 lbs.

Heifers less than 1000 lbs.

• Lot size and uniformity are very important

• Breed/color impact price

• Time of sale important(probably hard to manage)

• Dehorn and castrate early

• Market healthy cattle

• Stay away from extremes (frame, condition, fill)

• Results written up in paperon www.agmanager.info (and (embedded in decision tool)

What do premiums/discounts indicate…

http://www.agmanager.info/livestock/marketing/bulletins_2/marketing/default.asp

These three buttons take the user to tabs showing hedonic model results (i.e., tables we have already looked at).

These four buttons are linked to tabs that allow the user to examine how changing cattle traits impacts price. Partial budget tab also allows user to bring in costs in a simplified way.

Tab that allows three side-by-side comparisons

Impact that horns have on price…

Impact that sorting cattle into smaller (-) more uniform (+) groups has on price…

Partial budget to look at net returns of making a change that affects price…

Impact that a 45-day preconditioning has on price/returns…

Partial budget to look at net returns of making a change that affects price…

$27.54

Feeder cattle price forecasts…

Beginning Date

Ending Date

Beginning Weight, lbs

Ending Weight, lbs

Weight Gain, lbs/head ADG, lbs

Value of Gain, $/cwt

01/11/14 02/24/14 550 650 100 2.27 $126.1101/11/14 03/09/14 550 650 100 1.75 $130.7301/11/14 04/09/14 550 750 200 2.27 $121.0501/11/14 05/05/14 550 750 200 1.75 $127.3801/11/14 05/11/14 550 850 300 2.50 $117.4001/11/14 06/10/14 550 850 300 2.00 $120.81

Note: Projections derived for the Dunlap, IA market using BeefBasis.com Related information available at BeefBasis.com 01/11/14

Value of gain projections…

Historical Value of Gain…

For more information related to livestock marketing and risk management tools see…

www.extension.iastate.edu/agdm/

www.econ.iastate.edu/margins/

Lee Schulz – 515.294.3356 – lschulz@iastate.eduDepartment of EconomicsIowa State University