Dr. Curt Lacy (UGA)
An interesting phenomenon that has been occurring during the recent run-up in feed prices has been the consistent spread in calf and feeder prices (see chart below). Back in 2008 when feed prices reached their historical highs, the spread between 500-600 pound steers and 700-800 pound steers narrowed to $3.52 per hundredweight a much smaller difference than the normal $13.50. Currently the spread between calves and feeder cattle is actually at a 5-year high at roughly $24 per hundredweight. So what gives?
There probably is not one item that answers this question. However, there are several things to consider. First, live cattle prices for the foreseeable future are above $115/cwt.-much higher than they were in 2008. Second, we are in the time of year when demand for lighter-weight calves is typically stronger than any other time of the year as graziers are looking for cattle to run on summer pasture and then sell as feeders later in the summer or early fall. This situation is buttressed by the fact that feeder cattle futures for August and October currently exceed $135/cwt. As a result, many buyers are likely buying stockers to put on grass with hopes of either selling them at roughly $125 later in the year at heavier weights or holding on to them and retaining ownership in the fall. It is also quite possible that some buyers have already hedged this spring’s calves using live cattle futures with plans of putting cheap grass gain on during the summer and then feeding them this fall with hopes that corn prices will be lower then.
Bottom line, while things may seem very similar to three years ago, they are actually quite different.