Feeder Cattle futures are standardized, exchange-traded contracts in which the contract buyer agrees to accept delivery of a particular number of feeder cattle (e.g. 50000 pounds) from the seller at a predetermined price on a future delivery date from the seller.
What is the market for feeder cattle?
Feeder cattle, also known as store cattle in some nations and regions, are young cattle that are mature enough to be backgrounded or fattened in preparation for slaughter. They could be steers (males who have been castrated) or heifers (females who have not been castrated) (females who have not dropped a calf). The expression frequently implies a desire to sell to other owners for fattening (finishing). Backgrounding takes place in a backgrounding operation, whereas fattening takes place in a feedlot. Feeder calves are under a year old, whereas feeder yearlings are between the ages of one and two. In a cow-calf farm, both types are frequently produced. Feeder cattle become finished cattle when they reach a certain weight and are sold to a packer (finished cattle are also called fattened cattle, fat cattle, fed cattle, or, when contrasted with carcasses, live cattle). The cattle are slaughtered and the flesh is sold in carcass boxes.
Feedlots buying 500-850 pound feeder cattle calves and feed to grow them into 850-1400 pound cattle will normally buy 500-850 pound feeder cattle calves and feed. Backgrounding enterprises usually buy 300-600 pound feeder cattle calves and feed them till they reach 650-875 pound backgrounded weight. Backgrounding cattle weighing between 650 and 700 pounds are suited for grass feeding operations, while those weighing between 800-825 pounds are suitable for feedlot operators. Feeder cattle buyers prefer cattle with a high average increase (in weight) and a low feed-to-gain ratio. Varied feeder cattle purchasers will look for different weight and grade ranges depending on the situation.
Feeder cattle pricing, weights, time to fatten, death rates, and other feeder cattle parameters are balanced against feed prices, live cattle prices, and other operating considerations by cattle producers and backgrounding businesses to profit from their operations.
What is the difference in price between live and feeder cattle?
The graph for this week emphasizes the relationship between those two markets. Since the market moved through the steep drop of 2015, the price connection has remained surprisingly constant. The CME feeder cattle index has been around $30 ahead of the postponed live cattle contract in recent weeks. To that end, the deferred fed index has averaged $114 over the last four years, while the feeder cattle index has averaged $144.
Inevitably, one of the most frequently asked questions by farmers is, “How do you see feeder prices developing?” The answer inevitably prompts a question on the other side, based on this trend “How do you see fed prices developing?”
What is the distinction between feeder and live cattle?
What is the fundamental difference between live cattle and feeder cattle, many of you may wonder?
Live cattle are cattle that have reached a desirable weight (850-1,000 pounds for heifers and 1,000-1,200 pounds for steers) and are ready to be sold to a packer. Feeder cattle are weaned calves who have recently been put to feedlots (approximately 6-10 months old). The cattle are slaughtered by the packer, who then sells the meat in carcass boxes.
The USDA’s predictions for net exports of US meat and poultry, which are likely to climb again this year from past years, are another short-term bullish reason for fat/live cattle.
Why are the prices of feeder cattle falling?
Between March and July, the feeder cattle market saw a large level of price volatility. Retail meat demand has been historically strong, and meat exports to China have pushed prices up. While there have been some favorable price moves for feeder cattle, the most of the downward price pressure has been due to fodder production uncertainties and rising grain costs. Drought conditions in the Western United States have forced feeder cattle and cull cows to come to market earlier, and increased grain prices have prompted a run-up in grain prices due to poor stocks-to-use ratios and declining global maize production, diminishing a feedlot’s demand for feeder cattle. Feeder cattle prices can be lowered by increasing the supply of feeder cattle from producers and decreasing the demand for feeder cattle from feedlots.
What is the average weight of a feeder calf?
Yearlings weighing up to 800 to 900 pounds. Packers like animals weighing between 1,100 and 1,200 pounds, thus the most typical weight of calves kept on feed is between 500 and 700 pounds.
What is the basis for feeder cattle futures?
Feeder Cattle futures (GF) are young cattle that have grazed on pasture and are between 700 and 899 pounds in weight. These cattle will be placed in a feedlot and fed a specialized grain-based diet for four to six months, or until they reach their maximum frame and weight potential.
How much is a 500-pound calf worth?
It’s spring, which means many winter stocker farmers are starting to think about shifting their calves off cool-season pastures and into selling channels. With cattle prices at all-time highs, one may think that determining the ideal time or weight to sell cattle doesn’t require much thought or research. The best time or weight to sell cattle will be when pastures stop growing and are grazed out.
As market news information from state auction markets becomes available each week, it’s interesting to see what the market is paying for growth at various calf weights. The long-term average for gain is around 55 cents per pound. For instance, if a 500-pound calf costs $1.40 per pound and a 600-pound calf costs $1.26, the value of that 100 pounds of increase is $56, or 56 cents per pound. Some people value gain at $1.26 per pound, which is the price per pound of the calf being sold. The genuine worth of the incremental weight gain is the difference in the gross value (500 lbs. x $1.40 = $700 and 600 lbs. x $1.26 = $756) of the two weights ($756-$700 = $56) divided by the quantity gained ($56 x 100 lbs. = 56 cents).
Despite the fact that the average value of gain at all weights is roughly 55 cents per pound, the value of growth normally increases as the calf gets lighter and falls as the calf gets bigger. For example, the additional gain from 300 pounds to 400 pounds could be worth up to 75 cents per pound. The incremental increase from 700 to 800 pounds, on the other hand, may only be worth 25 cents per pound. When the market is working normally, these values would exist. Unusual supply and demand situations can cause normal values to alter for the better.
By paying higher-than-normal pricing for grass growth at bigger weights, feed yards can encourage calves to stay in the country longer and gain more weight. Alternatively, if feed yards want to feed calves at lighter weights, or if there is a springtime shortage of summer grass cattle, the market may offer very high prices for gain at weights between 500 and 600 pounds, and very low prices for gain at heavier weights, possibly as low as 10 to 15 cents per pound. If these conditions prevail, a stocker operator may want to explore marketing calves before the end of graze-out if there is another source of income for the ungrazed cool-season feed. Moving the calves to market early would make the most money if the market was paying 20 cents a pound for gain above 750 pounds and a stocker operator could bale the hay and receive the equivalent of 30 or 40 cents a pound for gain. If there was no other source of income, such as hay or grazing with another class of cattle, it would be beneficial to keep adding gain to the cattle as long as the market offered a few cents for gain.
In recent weeks, the cattle market has been moving at a breakneck pace. Rather than assuming that the market is favorable and that earnings would be plentiful when you sell calves this spring, consider analyzing market news updates each week and calculating the worth of incremental gain for various calves weights. You might discover that those last few pounds aren’t worth much after all.
What’s the deal with cattle futures?
On the Chicago Mercantile Exchange, live cattle futures are standardized, exchange-traded contracts (CME). The contracts cover the delivery of full-grown calves that have achieved a weight of between 1,200 and 1,400 pounds and are ready to be delivered to meat processors. Because futures were primarily traded on storable commodities like grain at the time, the introduction of live cattle futures in 1964 was a bold step. Since then, the live cattle futures contract has gone through a number of revisions, each of which has improved the contract’s utility in risk management systems. Cattle producers have been able to better manage their pricing risk thanks to these technologies.
Feeder cattle are more expensive than live cattle for what reason?
Feeder cattle and live cattle are the two sorts of cattle that are traded by livestock traders. The stage of the production cycle distinguishes these two commodities.
Weaned calves weighing between 600 and 800 pounds are considered feeder cattle. Feeder cattle are then placed in a feedlot and fed a high-energy feed diet consisting primarily of corn and other grains. Feeder cattle require more than 500 pounds of gain before reaching slaughter weights, therefore corn prices have a significant impact on feeder cattle pricing.
On the other hand, live cattle are ‘finished’ products that are ready to be sold to slaughterhouses.