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CME: Feeder Cattle Prices at Premium

18 April 2019

US - Feeder cattle prices are generally determined by the confluence of Choice slaughter cattle prices and the cost of feed needed to produce an animal of appropriate weight and grade (finish), according to Steiner Consulting Group, DLR Division, Inc.

Corn prices are typically the best barometer of feed cost. Feeder cattle prices are at a premium to the slaughter cattle price to capitalize the value of lower priced corn. So far this year, the premium for feeder steer prices (700-800#) has been below prior years (see chart below).

Corn prices in the Western Cornbelt started the year about 5 percent above a year earlier but moved sideways as the year has progressed, leaving corn prices at about the same level as a year ago during March. Feeder cattle price premiums to the slaughter cattle market started to recover in the absence of price strength in the corn market in the second half of March.

Yearling feeder cattle price trends (700-800# cattle) were static for most of January through early March. This compared to a bounce in prices during the same period of 2018. The lack of price strength for yearling feeder cattle was a little surprising given the trend in corn prices along with slaughter cattle prices that were posting steady gains consistent with rising wholesale beef prices.

Some of the reason for rising beef and slaughter cattle prices is tied to wet, cold weather in primary feedlot regions that was slowing down weight gains and marketing rates for cattle coming out of feedlots. In turn, this reduced the demand from feedlots to purchase cattle to maintain feedlot inventories, thereby putting a lid on feeder cattle prices. The passing of winter weather issues was another factor supporting the impressive rally in feeder cattle prices as March came to a close.

The rebound in feeder cattle prices from the low $140 per cwt value to $150 per cwt in early April reflects better demand for feeder cattle from feedlots. This was somewhat induced by a seasonal moderation in weather. Industry expectations for a 4 percent increase in cattle placed into feedlots during March are in line with the better feeder cattle demand. The USDA Cattle on Feed report due out on Thursday will provide better insight into the cattle market of recent months.

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