Peel: A First Look at Fall/Winter Stocker Grazing
Current market conditions provide insight into fall and winter stocker grazing prospects. Feeder cattle auction prices show the current value of gain. For the last four weeks, the average price of 450 lb., medium/large no. 1 steers was $186.08/cwt. and the price of 750 pound steers was $156.31/cwt. This results in a value of gain $1.12/lb. on 300 pounds of gain.
Values of stocker gain are higher this year and reflect the increased feedlot cost of gain due to high feedgrain prices. Stocker value of gain is expected to remain elevated in the coming months. The value of gain reflects the broad market environment for adding weight to feeder cattle. Actual profitability will , of course depends on actual purchase and sale prices and production costs for stockers.
Feeder futures prices at any point in time provide an indication of feeder cattle prices later. For next spring, the current March Feeder futures price is around $166 - $167/cwt. Average March Oklahoma basis for 750 pound steers is about $2.00/cwt. resulting in a current estimated March price of $168 - $169/cwt. This is well above the current price of 750 pound steers and reflects the optimism baked into future cattle market expectations. Of course, futures prices change daily and the only way to assure the current price level is to take a position on feeder futures or options.
Another question for stocker producers is the expected purchase price of stocker calves later in the fall. The price of 450-500 pound steers typically decreases seasonally from summer to an October low, dropping about 4.5 percent from August to October. This suggests a price of roughly $177/cwt, for 450 pound steers in October.
However, cattle markets are trending higher and may offset the seasonal price patterns. Current October feeder futures plus average basis for calves suggests a price of 450 pound steers of roughly $196/cwt. I suspect the most likely calf price for October will be between these values, perhaps in the range from $180-$190/cwt.
The actual price of calves in Oklahoma will be affected by numerous market factors including the size and timing of fall calf marketings. Good pasture conditions could result in some delay in calf weaning and marketing this fall. Stocker prices will also be affected by the development, availability and supply of wheat pasture. Conditions may be favorable for early wheat planting but the threat of armyworms appears to be elevated this year.
Production costs are also unknown at this time, especially the cost of wheat pasture, but early budgets suggest decent return potential. It will be important reevaluate budget components frequently over time. Most components of fall and winter stocker budgets are uncertain at this point but it’s not too early to begin to pencil out possibilities, evaluating risk and perhaps taking actions to lock in some budget components.