Introduction

A cattle feeder should be able to answer these iii questions: 1) when will the cattle "terminate", 2) what is the expected price of fed cattle by that time, and iii) is feeding those animals likely to make money? Factors that impact cattle feeding probability include the price of feeder cattle, the toll of fed cattle, feed toll, feeding costs, rate of gain, death losses and involvement rate. A producer should be aware of the seasonality of prices and the sliding scale in order to make meliorate marketing decisions.

When feeder cattle prices are quoted, animals are typically classed by gender and weight. The human relationship between price and weight varies seasonally and over time. Regular or boilerplate cattle price changes within a year are captured by the cost seasonality concept. A "price slide" is oftentimes used to adjust for the differences betwixt the actual weight of the cattle and the base weight on which a base of operations toll is established. These two factors affect the final price the seller (buyer) would receive (pay) for the finished cattle. The concepts are explored in greater depth in the following sections.

Understanding Feeder Cattle Price Spreads

Different supply and demand situations result in seasonal price patterns during the year. Seasonality is measured by an alphabetize stating boilerplate prices over a particular time (usually in a specific month) relative to almanac average prices.Different classes of animals accept their distinct toll seasonality patterns. For example, fed cattle prices tend to peak in tardily wintertime or early spring earlier moving lower into summer due to supply and demand reasons. Figure one shows the seasonal price blueprint for finished steers in Alberta. The chart shows seasonality with an index of 100 representing the almanac average. The March bar, for example, shows that during the eight twelvemonth period, from January 2006 to December 2013, A1 and A2 steer price in March tends to average 3.v% higher up the annual average. The September price tends to boilerplate 2.2% below the annual average.

This seasonal price design for fed cattle results in a adequately anticipated blueprint in the feeder cattle toll spread. For example, in belatedly summer, mid-weight feeders in the range of 600 to 700 pounds may have a modest price per pound disbelieve compared to feeder calves in the 500 to 600 pound weight range. If placed in a finishing feedlot at the beginning of September, a 650 pound steer would finish in about 210 days, around the cease of March when slaughter cattle prices tend to be seasonally stiff. Alternatively, a 550 pound steer, if placed in a finishing feedlot at the beginning of September, would not end until the finish of April. Perchance later fed cattle prices accept peaked.

Equally nosotros move through the fall, 600 to 700 pound feeders become less desirable to buyers for two reasons: one) If placed in a feedlot in late November at 650 pounds, they will not finish until mid-June, when fed cattle prices tend to be seasonally weaker. 2) A 650-pound feeder, if "backgrounded" at a lower rate of gain, would become a 900- to 950-pound heavy feeder by spring. The 900- to 950-pound feeder at the terminate of April would non be as desirable for the "grasser" market. If placed in a finishing feedlot, it would exist fix for slaughter about mid-August, when prices tend to be seasonally lower.

However, a 550-pound steer in late November could be backgrounded through the winter and sent to grass in the spring. Alternatively, information technology could be placed into a finishing feedlot as a 800-850 pound feeder. It would and so be gear up for slaughter in October, when prices are typically starting to improve from their summer lows.
Figure 2 shows how relative prices change during the year for different weight classes. The nautical chart shows an viii year seasonal alphabetize cost comparison betwixt 550 lb (blue bars) and 850 lb (blood-red confined) feeder cattle for Alberta. Much of the relative toll difference can be explained by a combination of:

  • when those feeders would finish if placed in a feedlot, and
  • the seasonal supply and need for the respective weight classes.

Moving from winter into bound, the supply of 550-pound calves becomes less. Meanwhile, heavier weight feeders go more plentiful equally cow-calf operators sell their backgrounders. Feedlots are not unremarkably aggressively bidding for those heavy weights since they will finish at a time that fed cattle markets are seasonally weak and because at that place are more than of them marketed at that time. Into the autumn, heavy weight feeders become more desirable since they will finish when fed cattle prices are seasonally stronger, while lighter weight feeders are plentiful in supply every bit a considerable amount of calves are weaned and sold in the autumn.

Understanding the Sliding Scale Mechanism

Usually lighter weight feeder cattle are sold for a higher toll per pound. Figure 3 indicates the 5-yr (2009-2013) average steer price for different weight classes in the month of September for Alberta. Prices for steers subtract as weight increases. In cash forward contracts both the buyer and seller encounter risk from weight differences at the time of delivery compared to the time the contract was entered into. A "Price slide" is the usual approach to deal with this type of uncertainty. The sliding calibration enables bids for cattle to exist presented past the heir-apparent to the seller prior to actually weighing of the animals.

Figure iii: Five year average prices for different weight classes of steer in Alberta

The numbers used in a sliding calibration should be derived from the marketplace. Here is an example. The cattle possessor must be aware of current market prices for like cattle to determine the fairness of a bid and the slide being offered. This ways the producer must visit auction markets to discover cattle sales, watch internet or satellite sales, consider the seasonal price trend of diverse feeder cattle weight groups and seek market opinions from others in the industry.

Suppose the current boilerplate toll for 650-weight steer calves is $1.27/pound, the average cost for 550-weight steer calves is $i.33/pound, and the average toll for 450-weight steer calves is $ane.41/pound. Now, consider a group of average quality steer calves bid on at the farm. The buyer estimates their boilerplate weight at 550 pounds. Based on the electric current market weather condition, that group of 550-weight calves should exist worth about $1.33/pound. However, since the weight of those calves is only an judge at this point, the heir-apparent and seller may wish to build an adjustment gene into the offer to account for whatsoever difference between the estimated weight of 550 pounds and the bodily weight of the calves to be determined later upon weighing at delivery.

Since the current market place toll for 450-weight steer calves is $1.41/pound, or viii cents a pound more than 550-weight steers, it would be appropriate to positively suit the price of the farm calves by eight cents a pound for every hundred pounds that the actual weight is less than the 550-pound base weight.

On the other hand, the current price of 650-weight steer calves is $one.27/pound, or six cents a pound less than 550-weight steers, and then it would be advisable to negatively adjust the price of the subcontract calves by six cents a pound for every hundred pounds that the actual weight is greater than the 550 pound base of operations weight. If these adjustments became role of this bid, the bid would exist $1.33/pound for a base of operations weight of 550 pounds, with a "06" up and a "08" down slide.
Using this sliding scale, often called "aught-six upwards" and "null-eight downwards", and a base cost of $1.33/pound for 550-weight steers, hither is how the price would be adjusted after the cattle are actually weighed. If the bodily average weight of the cattle is 575 pounds, or 25 pounds greater than the base weight, the terminal price would be $1.33 - (25/100 X .06) or $one.3150. If the bodily average weight of the cattle is 530 pounds, or 20 pounds less than the base weight, the final price would exist $ane.33 + (20/100 X .08) or $1.3460.

The price slide can reflect anticipated feeding efficiencies. For case, higher performing feeders may have a smaller slide adjustment than less efficient feeders.

Other important Notes:

Other factors affecting price spreads betwixt feeder cattle weight classes are demand-related to the backgrounding,grasser, or breeding heifer market place. Rising feed grain prices tend to disfavor the value of lighter feeders compared to heavier weight feeders since it costs more for the cattle to gain weight on a higher cost grain-based ration. Ampleforage supplies tend to favour the value of lightweight feeders as forage owners bid up the feeder price in an try to plough their low-value provender into beef. Feeder heifer demand for the breeding marketplace normally improves when bred cows become relatively loftier-priced. Conversely, when the beef industry is in contraction mode (declining beefiness moo-cow numbers),the demand and cost for feeder heifers tends to drop relative to steers.

Summary

This article sheds some light on different relationships betwixt toll and weight of cattle. Price and weight too as gender relationships vary in unlike ways. In that location is a relationship between weight and price at a specific time for whatsoever grade of animal. Also, the price of any weight course of animal has a seasonal pattern. The fourth dimension when prices tend to peak is unlike for different weight classes. Sometimes, there is a time gap between contract and delivery of the finished cattle. A sliding scale of prices can be used to account for differences between estimated and actual weights.Understanding all these trade-offs helps a producer make a better decision.

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