– Dr. Kenny Burdine, Livestock Marketing Specialist, University of Kentucky
Dr. Burdine will be featured at the OSU cattle Outlook session on January 26!
As we push into winter, I wanted to review what drives fall calf markets and discuss those factors in 2020. Fall is when most spring calving herds wean and market their calves, which means a lot of cattle revenue is received over a fairly short period of time. There are three main routes that weaned calves can take if they are sold in the fall – they can be placed into a small grain grazing program until spring, they can go into a feed-based growing program of some type, or they can go directly to a feedyard. Their value in these programs ultimately determines what they are worth in the fall of the year.
Coming from an area of the country where wheat grazing is not common, it is easy to forget how significant winter grazing programs can be. However, the January 2020 USDA Cattle Inventory report suggested that 1.6 million cattle were grazing small grain pasture in January of this year. I like to say these grazing programs set the underpinning for our fall calf markets. Since cost of gain is lower on these programs, they typically outbid feed-based operators for weaned calves. Weather and moisture conditions have been less than ideal, but calf prices in November did suggest some opportunity for these programs this winter.
Feed-based winter growing programs are more significant in my part of the county. Weaned calves are purchased in the fall, grown through winter, and sold in the spring. The timing matches small grain grazing programs pretty closely. While stockpiled forage is sometimes utilized, commodity feeds are much more common. These are programs are designed to grow frame and produce a heavy feeder steer for placement on full feed in the spring.
Finally, a large number of calves are placed on feed in the fall. Naturally, these weaned calves are higher risk than heavy feeders, but there are so many calves moving through markets in the fall, a good portion of them end up in feedyards. These calves are typically transitioned pretty quickly to full feed and often hit the fed cattle market the following summer.
While most readers are well aware of what I just discussed, I wanted to review these fundamentals with 2020 in mind. In addition to lingering COVID effects on the supply chain and continued uncertainty about foodservice demand, feed costs have steadily risen since summer. A quick glance at December CME© corn futures shows that corn prices are up nearly $1 per bushel from where they were in early August. This increase in cost for feedlots and feed-based growing operations decreases the value of weaned calves. Had COVID-19 not been the focus of most market discussions, the impact of a feed price change of this magnitude on feeder cattle prices would have gotten a lot more attention.
However, despite COVID impacts, less than ideal winter grazing conditions, and significantly higher feed prices, it’s worth nothing that most calf markets this fall were slightly above 2019 levels (see figure 1). In all fairness, I projected them to be higher than that before COVID, but I do think it says something that our fall market held above last year. I think it’s a testament to how resilient our meat system is and how well the industry adjusted to major changes in demand and a very significant supply shock this spring. I also think it is partly due to the smaller calf crop in 2020, which was the first step in building stronger calf prices going forward.
Figure 1. 550# Medium & Large Frame #1-2 Steers
KY Auction Prices ($ per cwt)
EDITOR’s NOTE: Make plans to join us virtually at 6:30 p.m. on January 26, 2021 when Dr. Kenny Burdine shares his Cow/Calf Outlook for 2021 with us. It’s free, but you must register in advance.