Dillon M. Feuz, Ph.D., Professor, Department of Applied Economics, Utah State University
This week the 5-area fed steer carcass weights exceeded 900 pounds. I believe that is a record. Weights have been running above year ago levels for most of 2011. This probably is partially a result of negative feeding margins for much of the year and higher cattle prices. This may not seem intuitive at first, but let’s consider the economic forces. If I am losing money on a pen of cattle, I am looking for every advantage to try and salvage a few more dollars per head. Even though we have had higher feeding costs in 2011, the fed cattle price per pound as still exceeded the cost per pound of gain. Therefore, a feeder has an economic incentive to try and add a few more pounds to those cattle before selling them. A feeder will push the limits of what a packer will allow in terms of carcass weight up to the point of being docked for too heavy of a carcass weight.
Since August the Choice-Select spread has been steadily increasing. This past week it exceeded $18 per cwt. That is also near record high. That provides a real incentive for feeders to try and get more cattle to grade choice. Once a feeder has cattle on feed, the genetics are set, so that won’t impact the percentage grading Choice. There really are only two main management tools to increase the percentage of cattle grading Choice and they are related: 1) be less aggressive with implants and 2) feed the cattle longer. Typically, if you are less aggressive with implants, you are also going to feed the cattle longer. However, you may lose as much in feed efficiency in this scenario as you gain in a higher price by selling more Choice grading cattle. Alternatively, you can continue the same implant strategy and still feed the cattle longer, and therefore have heavier cattle to sell.
This all works just fine until too many feeders end up with too many heavy-weight or over fat cattle. Then packers usually have the upper hand in price negotiations, and the discounts for heavy and over fat cattle become significantly larger. From the feedlot perspective, perhaps some caution is warranted given the short term economic incentives to produce heavier cattle. Don’t get them too big or too fat.
The Markets
The fed cattle market was higher this past week. Most trade took place on Thursday this last week. Prices were at mostly $121 on a live weight basis and were $191 on a dressed basis. Choice boxed beef prices were lower this week. The Choice-Select spread increased and is wider than the typical level. Feeder cattle prices were mostly higher this past week compared to last week’s prices. Montana prices were steady for heavier feeders and higher on calves. Nebraska prices were lower for yearlings and higher for calves this week. Oklahoma prices were higher for yearlings and were higher for calves compared to last week. Corn prices were steady with last week using mid-week prices. Dried Distillers Grain prices were $3 per ton higher in Nebraska for the week.
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