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Understanding Feeder Calf Market Volatility

published: August 3rd 2009
by: Dan Childs
source: Noble Foundation

Many producers in the stocker business have said that the profit is made when the calf is purchased. If correct decisions are made when the calf is bought, then the rest of the job is much easier. Attention must still be given to health, gain and input costs, but, if the calf is too expensive to start with, profits can be elusive even with low death loss, morbidity and good gain. There is wisdom in this, but, in today's highly volatile market, considerable variation in a calf's sale value can be experienced from week to week. This can also have a significant impact on profitability.

To determine if there were any seasonal patterns in the price volatility of 700- to 800-pound feeder cattle sold at Oklahoma City National Stockyards, average prices for each week were compared to the week before for all 52 weeks of the year. The week-to-week changes are shown in Figure 1. The price used for each week is the three-year average for that week for the years 2006-2008 as reported by the Agricultural Marketing Service of the United States Department of Agriculture. The change in price from one week to the next was measured as a percentage. For example, the average percentage change for the last three years from week two to week three was a negative 3 percent. However, the average percentage change from week three to week four was very near zero. The largest week-to-week percentage change for the average of the three years was from week 40 (early October) to week 41. The average percentage change for those two weeks was a negative 5.2 percent.

Can any kind of conclusions be drawn from this information? The chart validates our observation that the market at Oklahoma City National Stockyards for 700- to 800-pound feeder steers on the average for the last three years has been very volatile. If one looks closely at Figure 1, however, it is noticeable that most of the changes from week to week from about week 12 (early April) through week 34 (early to mid-August) are positive changes, especially from week 18 (mid April) through week 28 (late July). Then from week 34 to just before Christmas, most of the changes are negative with weeks 40 through 42 (the first part of October) having the most negative changes of the year. This can be useful information if you are contemplating a sale of 700- to 800-pound feeder cattle. Even though there is substantial volatility in the Oklahoma City feeder cattle market from week to week and each year does not exactly duplicate the year before, many of the decisions producers make are based on averages. Therefore, on the average, one could conclude that the changes from week to week at Oklahoma City for feeder cattle are generally positive in the summer and generally negative in the fall, especially early to mid-October.

Keep in mind that any kind of commodity marketing, cattle included, is best done according to a plan. Decisions based on emotion often result in less than desirable outcomes compared to a well thought out and executed marketing plan.