Peel Says Market Dynamics Affect Summer Stocker ProspectsMon, 16 Apr 2012 13:27:09 CDT
OSU's Extension Livestock Market Specialist Derrell Peel says record high stocker prices this spring have producers and their lenders nervous about the financial exposure of summer stockers. Feeder prices have dropped the last month but the change has actually decreased the stocker margin, i.e., the value of gain for summer stockers. Moreover, the changing price relationships have changed the implications for stocker production and marketing.
In mid-March, the price of 475 pound steers in OKC was about $203/cwt. which is an initial stocker value of $959/head, using the actual weighted average prices and weights. At that time, the price of 725 pound steers was $160/cwt. or a per head value of $1165. This implied a value of gain of $0.81/pound for 250 pounds of gain. Using last week's Oklahoma auction averages, the 475 pound steer price was $190/cwt, or $905/head. The 725 pound steer price was $151/cwt. with a per head value of $1095. This implies a value of gain of $0.76/pound.
Over the last month, a sharp price break has developed in the 600-700 pound weight range, such that there is currently about a $20/cwt. price break over that 100 pounds. The value of gain in that range is less than $0.40/pound. This means that stocker gains are being valued at $0.80-$1.00/pound up to about 600 pounds (for steers) followed by very low value gains for the next 100 pounds or so and then by higher value gains again between 725 and 875 pounds. Using last week's actual prices and weights, gains up to 619 pounds were worth $1.07/pound but the next hundred pounds, up to 726 pounds were worth only $0.35/pound. Gains above this level, up to 875 pounds, were worth $0.70-$0.75/pound.
These price patterns have implications for summer stockers. The current price breaks may favor early intensive stockers which utilize more lightweight animals and less total gain per head compared to season long stockers which put on slow gains late in the summer and which would produce little value in the current market structure. The good news is that feeder futures have not dropped as much, only down about $2.50/cwt in the past month for the August contract. At the current time, it is still possible to lock in value of gain in the mid-$80/cwt. range. Summer stockers have potential for decent returns but market conditions may have implications for both production and marketing considerations.
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