Higher Feed Costs Mean Changes in Cattle Markets
Cattle feeders this year are facing markedly higher feed costs due to the increase in corn prices. This, in turn, increases the cost of gain which influences the prices for feeder cattle. Derrell Peel, an extension agricultural economist, discusses the adjustments in the feeder markets due to higher feed costs in a recent Oklahoma State University extension article.
Figure 1, created by Peel, shows the average auction prices for Oklahoma feeder cattle ranging from 375 pounds to 925 pounds in mid-July (blue line). Peel explains, “the red line shows approximately how a feedlot is willing to price lighter weight feeder cattle relative to an 825-pound animal, in the current market, when feedlot cost of gain (COG) is $112/cwt. The red line lies on top of the blue market price line, which indicates that the feeder market currently reflects roughly this level of feed costs. The green line shows approximately how feedlots would price lighter weight feeder cattle if feedlot cost of gain was at 2020 levels, roughly $80/cwt. In other words, the price of lightweight feeder cattle would be significantly higher relative to heavy feeders with lower feed costs…”
While Peel’s uses Oklahoma cattle prices for his illustration, the same price adjustments no doubt occurred in Nebraska. The feeding sector reacts to high feed costs by buying heavier cattle requiring less feed to finish. Peel notes, “For cow-calf and stocker producers, this means more opportunities for retained stockers and stocker production to heavier weights in response to those market signals.”
Figure 1. Price-Weight Relationship, Medium/Large No. 1 Steers