factors affecting feeder cattle prices (understanding the link between genetics, management,...
TRANSCRIPT
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 – [email protected] 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 – [email protected] of EconomicsIowa State University