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Factors Affecting Feeder Cattle Prices (understanding the link between genetics, management, marketing, and prices)

Factors Affecting Feeder Cattle Prices (understanding the link between genetics, management, marketing, and prices). ECON 337 Agricultural Marketing: 2:10 – 4:00; March 11, 2014. Lee Schulz – 515.294.3356 – lschulz@iastate.edu Department of Economics Iowa State University.

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Factors Affecting Feeder Cattle Prices (understanding the link between genetics, management, marketing, and prices)

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  1. Factors Affecting Feeder Cattle Prices (understanding the link between genetics, management, marketing, and prices) ECON 337 Agricultural Marketing: 2:10 – 4:00; March 11, 2014 Lee Schulz – 515.294.3356 – lschulz@iastate.edu Department of Economics Iowa State University

  2. Marketability: Buy and sell them “right”… What exactly does “right” mean? • Buy low – sell high make lots of money! • As a seller, know what your buyers are looking for and strive to deliver it to them • As a buyer, recognize how the various traits and characteristics are valued and buy what best fits your program (i.e., your comparative advantage) (of course this doesn’t work for everybody as some are buying from those selling)

  3. What drives/determines feeder cattle prices…

  4. Breed impacts price… Some things have changed over time… BASE Other things have been more constant…

  5. Sex and breed impacts price… Source: Holton Livestock Exchange, Inc. (Northeast Kansas) -- Discount on heifers (vs. steers) fairly constant across sales ($5.50-$8.93) -- Black/BWF consistently brought higher prices than other breeds/colors

  6. Breed impacts price… Source: CAB “Where’s the Premium” study, 1999-2008 -- Target 500 pound calves in the fall and 700 pound feeders in the spring -- Consistent premium on Angus-influence calves and premium has generally been trending up over this time period

  7. Weight impacts price… Source: Holton Livestock Exchange, Inc. (Northeast Kansas)

  8. Weight impacts price…

  9. Corn price impacts weight price relationship… “Low” CN: FC price ↓ more rapidly as weight ↑ Lightweight feeders worth more relative to heavy feeders becauseCOG lower

  10. Live cattle price impacts weight-price relationship… “Low” LC: FC price ↓ less rapidly as weight ↑ Lightweight feeders worth less relative to heavy feeders

  11. Lotsize impacts price… Source: CAB “Where’s the Premium” study, 1999-2008

  12. Several other factors impact price… Source: Oklahoma Quality Beef Network (OQBN) auction sales, AGEC 602

  13. Factors impacting price change over time…

  14. What about preconditioning calves… • Premiums of +$6/cwt when calves are vaccinated and weaned • Premiums tend to be higher for steers than heifers Source: Factors Influencing the Price of Value-Added Calves at Superior Livestock Auctions (Lance Zimmerman MS thesis, 2010 - KSU. So does it pay to precondition calves?

  15. What about age and source verification programs… • Premium of around $1.50-$2.00/cwt pretty consistently over last several years Source: Factors Influencing the Price of Value-Added Calves at Superior Livestock Auctions (Lance Zimmerman MS thesis, 2010 - KSU. Will premium disappear as Age & Source Verification becomes more common?

  16. Feeder Cattle Reports & USDA Feeder Cattle Grades Frame Size and Thickness (Muscling)

  17. USDA Feeder Cattle GradesFrame Size Large Medium Small USDA/MRP/AMS

  18. USDA Feeder Cattle GradesFrame Size - Large Tall and long bodied ½ inch fat Steers over 1250 lbs. Heifers over 1150 lbs. USDA/MRP/AMS

  19. USDA Feeder Cattle GradesFrame Size - Medium Slightly tall Slightly long bodied ½ inch fat Steers 1100 to 1250 lbs. Heifers 1000 to 1150 lbs. USDA/MRP/AMS

  20. USDA Feeder Cattle GradesFrame Size - Small Not as tall as Medium Short bodied ½ inch fat Steers less than 1100 lbs. Heifers less than 1000 lbs. USDA/MRP/AMS

  21. What do premiums/discounts indicate… • Lot size and uniformity are very important • Breed/color impact price • Time of sale important(probably hard to manage) • Dehorn and castrate early • Market healthy cattle • Stay away from extremes (frame, condition, fill) • Results written up in paperon www.agmanager.info(and (embedded in decision tool)

  22. http://www.agmanager.info/livestock/marketing/bulletins_2/marketing/default.asphttp://www.agmanager.info/livestock/marketing/bulletins_2/marketing/default.asp

  23. These three buttons take the user to tabs showing hedonic model results (i.e., tables we have already looked at). These four buttons are linked to tabs that allow the user to examine how changing cattle traits impacts price. Partial budget tab also allows user to bring in costs in a simplified way.

  24. Tab that allows three side-by-side comparisons

  25. Impact that horns have on price…

  26. Impact that sorting cattle into smaller (-) more uniform (+) groups has on price…

  27. Partial budget to look at net returns of making a change that affects price…

  28. Impact that a 45-day preconditioning has on price/returns…

  29. Partial budget to look at net returns of making a change that affects price… $27.54

  30. Feeder cattle price forecasts…

  31. Value of gain projections…

  32. Historical Value of Gain…

  33. For more information related to livestock marketing and risk management tools see… www.extension.iastate.edu/agdm/ www.econ.iastate.edu/margins/ Lee Schulz – 515.294.3356 – lschulz@iastate.edu Department of Economics Iowa State University

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