It is hard to find words to describe the strength of the feeder cattle market that we are currently experiencing. At the time of this writing, fall feeder cattle futures were in the low $240's, with summer contracts in the mid-$230's. While the price levels are unprecedented, the drivers are the same one that we have watched for years - fed cattle and corn prices.
Fed cattle markets made their lows in early summer, which is the usual seasonal pattern. However, they have increased by $10 -$20 per cwt since then, when the typical seasonal pattern would have them going back to about their spring levels. We have seen roughly this same increase in spring live cattle futures, which are the driving force behind feeder cattle prices this fall. Another factor that hasn't gotten as much attention has been the very strong value of the hide and offal during 2014. The graph below depicts this price level as compared to 2013 and the five year period 2008-2012. In addition to boxed beef, hide and offal represent an income stream for packers and also get bid back into feeder cattle prices.
Secondly, this increase in live cattle prices has continued to be accompanied by decreasing corn prices. The expected size of the 2014 corn crop has continued to grow with the September estimate at 14.4 billion bushels. New crop corn prices have moved from the low $5's this spring to the low-mid $3's this fall. The combination of stronger fed cattle markets and cheaper corn have added strength to a feeder cattle market that was already being driven by tight supplies.
Something else that bears watching this fall is cow slaughter. We discussed this briefly a couple months ago when we broke down the mid-year cattle inventory estimates, but I thought it might be worth revisiting as the basic trend has continued since then. Through the end of August, cow slaughter is down by more than 500,000 head (see chart below). If this trend continues, it has potential to impact the size of the 2015 calf crop as much as anything else. It is also not surprising that heifer slaughter is also down. While the USDA mid-year report did not indicate much in the way of heifer retention, I do think there are some signs that we may be in the early stages of herd expansion.