Producers in What States Were Most Affected By the 2016 Feeder Cattle Price Drop?

by Anton Bekkerman, associate professor in the Department of Agricultural Economics and Economics at Montana State University

Originally published January 4, 2017 on www.ageconmt.com

Ready to start 2017? If you’re a cattle producer, then you’re likely answering that question with a resounding YES!

Indeed, between January 2015 and January 2016, feeder cattle futures prices dropped from approximately $225 per hundredweight to $167 per hundredweight, a 26{73205e5fd8edf14435f3e2e65a2beea89873ca1d4142610a26265edfe9982562} reduction. And as we near January 2017, prices are hovering right around $130 per hundredweight, representing an additional 22{73205e5fd8edf14435f3e2e65a2beea89873ca1d4142610a26265edfe9982562} year-on-year slide. But, despite futures prices being helpful in indicating overall market trends, they are not very informative for understanding how these price reductions may have differed across different locations.

Using historical sales price data from beefbasis.com, I put together a quick characterization of the extent of the spatial distribution of feeder cattle price changes. The first figure below shows the change in the sales volume-weighted average prices across Great Plains states between 2011-15 and 2016.

Chart notes: Data are from beefbasis.com and represent monthly sales prices at auctions for 550-600 pound, 1-2 class, medium and large frame steers. Annual averages for each state are calculated by weighting each reported price by the proportion of cattle sold at the sales location relative to all cattle sold in the state during a particular year.

The figure shows that in 2016, the average price drop for feeder cattle relative to the average price between 2011 and 2015 was highest in Texas, Wyoming, Oklahoma, and Montana. In those states, respectively, prices dropped by 14.87{73205e5fd8edf14435f3e2e65a2beea89873ca1d4142610a26265edfe9982562}, 12.10{73205e5fd8edf14435f3e2e65a2beea89873ca1d4142610a26265edfe9982562}, 11.75{73205e5fd8edf14435f3e2e65a2beea89873ca1d4142610a26265edfe9982562}, and 11.68{73205e5fd8edf14435f3e2e65a2beea89873ca1d4142610a26265edfe9982562}. In all of the other Great Plains states, price reductions were less than 10{73205e5fd8edf14435f3e2e65a2beea89873ca1d4142610a26265edfe9982562} relative to the 2011-15 average price.

Here’s a more stark picture: changes between average 2015 and average 2016 feeder cattle prices.

Between 2015 and 2016, Montana and Texas cattle producers experienced the largest price reductions, with prices dropping by nearly 50{73205e5fd8edf14435f3e2e65a2beea89873ca1d4142610a26265edfe9982562}. Wyoming, South Dakota, and Oklahoma also saw price drops that ranged between 38{73205e5fd8edf14435f3e2e65a2beea89873ca1d4142610a26265edfe9982562} and 44{73205e5fd8edf14435f3e2e65a2beea89873ca1d4142610a26265edfe9982562}. The states that experienced the least price reductions were Colorado, North Dakota, and Kansas.

Why such disparity across states? My hypothesis is that it’s a return to a long run spatial price relationship. As I discussed in a previous post, feeder cattle prices in Montana, Wyoming, and Texas are typically higher than average. During the 2014-2015 price increases in the cattle markets, prices in those states increased disproportionately more than price increases in other states. As markets adjusted and price began to decrease to their long run averages, prices in states with faster increases also experienced much more rapid and proportionately larger reductions.

Without more historic price data across the Great Plains states, it’s difficult to know whether this spatial distribution of price changes is consistent across time or a one-time behavior. But it’s certainly worth keeping an eye on when another price run-up and eventual decrease occurs.

Dr. Anton Bekkerman is an associate professor in the Department of Agricultural Economics and Economics at Montana State University, joining the faculty in 2009 after completing his PhD at North Carolina State University. Bekkerman's primary areas of research are grain marketing, basis and price forecast modeling, understanding how grain prices are affected by changes in supply chain infrastructures and quality demands, and analyzing the economic trade-offs of adopting alternative dryland cropping systems in Montana. One of his current projects is an investigation of how new grain loading technologies are affecting prices that Montana farmers receive for their wheat. Bekkerman is also examining the economic impacts that Montana's rapidly expanding dry pulse industry will have on the state's crop industry. Although Bekkerman grew up on the east coast, he has recently made a small step toward production agricultural after acquiring three backyard chickens.

“One cool cow” (CC BY-ND 2.0) by ijzerman

Producers in What States Were Most Affected By the 2016 Feeder Cattle Price Drop?

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