CME: Pig Prices Still Down After Corn Price Rise
US – The drought induced mess that is 2011 seasonal feedlot placements has mostly everyone trying to guess how seasonal feeder cattle prices might differ this year from normal patterns, write Steve Meyer and Len Steiner.
Dr Derrell Peel, Oklahoma State University Extension Livestock Marketing Specialist, offered a very good discussion of the ‘normal’ pattern and the factors that might change it this year n the 29 August edition of Drovers Cattle Network.
Here are some highlights:
- Feeder cattle prices are usually near their peak in August and then drop the rest of the year. This is born out by seasonal price indexes prepared by the Livestock Marketing Information Center which appear at below. July actually has the highest seasonal index but the indexes for July, August and September are, for all practical purposes, equal.
- The ten-year average index suggests a drop of about $10-12/ cwt for 525-lb. medium/large frame number one steers from August to November. The decline for 725-lb. feeders would be four to five dollars/cwt.
- Several factors suggest that this year may be different.
- Seasonal patterns have changed from spring peaks to summer peaks but higher feed costs may shift the industry back towards spring peaks.
- Corn prices are keeping feedlot ration costs very close to the level where feeders and fed cattle have to trade at even money for cattle feeders to break even. Continued high prices of corn will limit feeder cattle premiums, especially at heavier weights.
- This year’s drought has changed both the supply and demand situations for this fall. Dry conditions will harm feeder cattle demand by delaying or limiting prospects for wheat pasture. That would normally put great pressure on feeder prices except for the fact that the same drought has caused significant early marketing of calves, tightening the supply that will be available this fall. Dr Peel believes that these early sales will result in little or no price pressure on fall calf and stocker prices.
- Finally, this year will see significant variations in normal regional patterns. Calf prices in Oklahoma are currently about 10 per cent lower than in Nebraska- a larger-than-normal spread between the two regions primarily driven by drought in the south and much better forage conditions in the north.
Bottom Line: Seasonal price pressure should be less than normal this fall, especially for calves.
Another Oklahoma State University professor, Dr Damona Doye, offers some excellent insights into the financial and management impacts that the drought might be having on southern cattle operations.
Her video interview can be found at www.sunup.okstate.edu — click on Dollar Signs and Drought.
Weaned pig producers that sell on the spot market have been hit extremely hard by high feed prices this summer.
As can be seen below, prices of these 18-12 day old, 10-12 pound pigs plummeted in April when corn prices rose and have recovered little since then.
Iowa State University estimates that these pigs have cost $40-$44/head to produce this summer so you can see that losses have been huge.
Most pigs are sold on long-term contracts and the average price of those contracted pigs has hovered near $40/head since early 2010.
But pigs on the spot market are risk with huge profits (see those $60/head prices in January?) and huge losses always possibilities. One factor that contributes to losses is that farrowing farms have no place to store these pigs waiting for a better price. When it’s time for them to go, they have to go and owners have absolutely no leverage.