Understanding Price Slides Can Help Ranchers Improve Cattle Marketing and Production AlternativesMon, 18 Sep 2017 11:30:32 CDT
Mondays, Dr. Derrell Peel, Oklahoma State University Extension Livestock Marketing Specialist, offers his economic analysis of the beef cattle industry. This analysis is a part of the weekly series known as the "Cow Calf Corner" published electronically by Dr. Peel and Dr. Glenn Selk. Today, Dr. Peel explains how producers can improve their cattle marketing and evaluate feeder cattle production alternatives by understanding the principles of feeder cattle price slides.
"Feeder cattle prices depend on the weight of the cattle with lightweight cattle typically having the highest price per pound (or hundredweight) and lower prices for heavier cattle. Not only do prices vary across cattle weights but the size of the price adjustment depends on the weight of the cattle. Price slides are a measure of the amount of price adjustment as weight changes from a base weight.
"Price slides have a number of uses, the most common of which is adjusting the price of forward contracted cattle if actual weight is different from the specified base weight. Price slides are also useful for producers to evaluate price changes for the weight gain of calves in a preconditioning or short backgrounding program or perhaps the additional weight from creep feeding calves. Prices slides are often stated in terms of traditional rules of thumb, e.g. a 10 cent slide on calves or a 6 cent slide on yearlings. The price volatility of recent years has shown that these rules of thumb using absolute levels are inadequate to accurately capture price adjustments over a wide range of price levels.
"Price slides depend on the price level and thus are more accurately stated as a percent of the base price. It is apparent that price slides are not only different for different weights but also vary for steers and heifers and at different times of the year. As an example of how to use these price slides, suppose the base price of 575 pound steers is $150/cwt. The annual average price slide is 6.7 percent which results in a price adjustment of $10.05/cwt. If the steer actually weighs 30 pounds more or 605 pounds, the price would be adjusted down by $3.02/cwt ($10.05 x 0.3 cwt.) to $146.98 ($150-$3.02). In this example, the price slide is close to the traditional 10 cent slide. However, while the percent price slide is constant, the absolute price adjustment depends on price level. Thus, the 575 pound steer would have a price slide of $8.04/cwt. if market price was $1.20/cwt. or $12.06/cwt if the market price was $180/cwt.
"It is evident that the percent price slide for heifers is generally lower compared to steers for the lighter weights but is roughly equal to the steer price slide for heavy feeders. It is also apparent that price slides for both steers and heifers vary across months. Price adjustments can be fine-tuned using the monthly average price slides. In general, price slides are relatively constant across months for light weight calves and for the heavy feeders. Price slides in the middle feeder weights (575-725 pounds for steers, 550-700 pounds for heifers) have wide variation across months. For example, 675 pound steers have an annual average price slide of 4.0 percent which varies from 8.2 percent in March to essentially zero in October.
"Price slides expressed in percentages adjust automatically and appropriately to changing market prices. Understanding price slides can help producers improve cattle marketing and evaluate feeder cattle production alternatives."
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