SW = slaughter weight of fed cattle (lb).ĬG = finishing industry's average cost of gain, excluding cost of feeders ($/cwt).Ĭonsider a case where the anticipated fed steer price is $126/cwt, the average cost of gain in the industry is $88/cwt, and the average slaughter weight is 1350 lb. Slaughter steers or heifers at the time when slaughter weight is reached ($/cwt). SP e = slaughter price expectation: finishing industry's average expectation of price of The two principle factors that affect this bidding process are:Ĭombining these two factors in a simple formula summarizes how demand affects feeder cattle prices:įP = feeder price at a given weight ($/cwt). To summarize, feeder prices are bid up and down depending primarily on economic conditions in the cattle finishing industry. Extended periods of profits or losses often result from an unanticipated shift in slaughter cattle prices. Under certain circumstances, feeder and/or slaughter cattle prices can remain "out of line" for a long time, leading to extended periods of losses or profits in the cattle finishing industry. Since there is no such thing as an average feedlot, less efficient operators consistently face losses and eventually drop out of the industry, while more efficient feedlots consistently make profits and expand. In the long run, there are few or no net profits or losses in cattle feeding for the average feedlot. Similarly, when feedlot operators experience or anticipate losses in cattle feeding, they tend to bid less for feeders. In practical terms, when cattle feeding becomes profitable, feedlot operators tend to bid up the price of feeder cattle. In a perfectly competitive industry, both economic theory and history indicate that prices will be bid up or down until there are no net profits or losses in the industry. The only major input price over which the cattle finishing industry has influence is the price of feeder stock. The price for their product, fed cattle, is determined in a competitive market, while most input prices such as feed and interest rates are dictated by the larger marketplace. The North American cattle finishing industry is comprised of a large number of operators facing input and product prices over which they have limited control. The demand for feeder cattle comes from the cattle feeding, backgrounding and grazing industries. Therefore, it is important to understand where demand for feeders comes from and what factors can affect demand. Demand is the more important factor in determining market price. The supply of feeder cattle does vary with the cattle production cycle, but supply is more of a known by market participants than is demand. Similarly, an increase in the supply of feeders will tend to lower the market-clearing price, while a decrease in supply will lead to higher prices. Increased demand for replacement cattle will lead to higher prices in the marketplace, while reduced demand will lead to lower prices. Demand for feeder cattle is influenced by the cattle feeding and backgrounding industries and is related to the economic conditions within those sectors. The demand for feeders is a derived demand. The supply of feeders in the long run (from year to year) is primarily a function of changes in the breeding herd and the calf crop, while in the short run (within a given year), numerous other considerations such as weather, seasonal production patterns, and price expectations will affect marketings. The feeder cattle market is a reasonably good example of what economists call a "competitive market," where forces of supply and demand interact to determine the product price (See: How Demand and Supply Determine Price). This formula is a tool that industry participants can use to estimate the price of a feeder animal of a given weight, well ahead of a sale date. This module discusses the principle factors that affect feeder cattle prices, and relates these factors through a formula to the Alberta market for replacement cattle. As a result of this complexity and variability, an organized and systematic approach is necessary in order to analyze the feeder market. The feeder cattle market is more volatile than the slaughter cattle market, as well as more likely to show considerable price variation between regions.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |