“The wide price swings in feeder cattle and feed prices in recent years is masked by looking solely at the basis. However, Diersen said moving forward, caution should be taken before using any kind of average basis on calves. Pricing and protecting tools and strategies for calves (for example, Livestock Risk Protection) still rely on some comparison to feeder cattle prices. “Historically, there was a stronger seasonal pattern in calf prices throughout the year, roughly reflecting seasonality in fed cattle and feeder cattle at other times throughout the year,” Diersen said.
#Feeder cattle prices 2018 series
A price series to monitor is that of 500-599 pound steers. The largest segment of cattle producers in South Dakota sell calves at or closely after weaning. However, for planning purposes a cull cow price could be found using two-thirds of the live cattle futures price. He added that more detail or scrutiny may be warranted for pricing or cross-hedging as the ratio has varied from 54 percent to 77 percent. “During the past five years, the monthly cull cow price in South Dakota has averaged 66 percent of the live cattle futures price,” Diersen said. He explained that typically, the price of cull animals is measured or considered as a percentage of fed cattle prices. “Calf prices can fluctuate and culling percentages can vary to affect the share of revenue, but overall cull revenue is important,” Diersen said. In most years cull cow revenue is a significant portion of total cattle revenue for cow-calf operations. The average feeder cattle basis has ranged from about $3 per hundredweight in January to above $9 per hundredweight in July and August (see Figure 2). To this point, Diersen said a 5-year average of historic basis could be used as an expected basis for the coming year. However, the relative value of feeder cattle in South Dakota compared to national levels is not expected to change,” Diersen said. “The change in weights may change the number and timing of feeder cattle from South Dakota included in the index. Prior to that, the feeder index reflected steers weighing 650-849 pounds. The value of feeder cattle, and the resulting prices, reflect the feed and feeding costs involved in finishing cattle.īeginning in November of 2016, the feeder index reflects feeder steers weighing 700-899 pounds. “If a forward bid is less than a basis-adjusted futures price, then a producer could negotiate for a more favorable bid,” he said. He explained that with an expected basis, forward bids for cattle can be compared to what would be likely using futures contracts for different months. “Expected basis should be adjusted if seasonality in futures is significantly different than in other years,” Diersen said. The latest five-year average fed cattle basis for South Dakota, by month, ranges from above $5 per hundredweight in May to less than $5 per hundredweight in December (see Figure 1). Thus, to cover typical variability in basis, a 5-year average basis could be used for planning purposes,” he said. “Despite these factors, the impact on basis going forward is not expected to be significant for the same quality of cattle. Looking at 2016 numbers, Diersen noted that there was a discount implemented for delivery on the October contract at SFRL in Worthing. The SFRL prices and basis levels include cattle with yield grades of 2-4, slightly wider than the futures specifications of 2-3. In other months, such as September through December, the basis is often negative, reflecting the transportation cost to slaughter markets. “The historically prevalent pattern in fed cattle prices is readily seen in the basis,” he said.įor example, Diersen explained that the basis in May is often positive, reflecting an expectation of lower cash prices during June. “The basis can be monitored for any localized price changes and to arrive at an expected price level to use for planning purposes,” Diersen said.īasis is the difference between the cash price and the nearby futures price. He explained that the SFRL price can also be compared to the Live Cattle futures price. “Generally, the SFRL price for fed cattle tracks or is similar in level and changes with the five-area price, a national benchmark,” Diersen said. The only Agricultural Marketing Service reported location with fed cattle sales in South Dakota is the Sioux Falls Regional Livestock market.
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