This week’s analysis comes from the Livestock Marketing Information Center (LMIC). LMIC is comprised of member Land Grant Universities and agencies across the U.S., including me as the representative from MSU. We have discussed Mississippi price seasonality before (see HERE and HERE). The information below is pulled from a much longer price series in Western Kansas than is available in Mississippi. The seasonal patterns in Kansas (and most states) is very similar to the seasonal patterns in the Southeastern states. The article below discusses how supply impacts seasonal cattle prices. Specifically, in times of larger calf crops like we are currently seeing, calf prices in the Fall are generally the lowest of the year. This puts an emphasis on risk management for those weaned calves that are planned to hit the market in October or November.
Many producers now have calves on the ground, so it’s a good time to discuss prices and to update marketing plans for the new-crop. Calf prices are expected to behave certain ways within a calendar year because of the seasonal production cycle. The majority of the U.S. is weaning its calves in the fall, and many of those animals head straight to market forming the 500-to 600-pound calf market and setting prices for yearly lows in the fourth quarter. Analysis of this seasonal pattern places the highest prices in March and April. LMIC has data for the Western Kansas Auction dating back to 1973, allowing for a full 40 years’ worth of observation of this weight class of cattle. However, it’s important to keep in mind, genetics and focused management have allowed for calves to be weaned at heavier weights. Weaning a 550-pound calf was not always the norm.
Over time this auction market has had small changes, but the latest ten years have proven quite volatile. Using the seasonal index for individual years, the 2014-2016 years set the 40-year maximum and minimum index value for October, November, and December. Beginning in 2014, the U.S. started a new cattle inventory cycle, and herd grew 0.7% in 2015, after seven years of year-over-year declines. The following year (as of January 1, 2016), cattle numbers (all cattle and calves) jumped-up over 3%, and in that October and November seasonal indexes dipped to the lowest values in 40 years. U.S. cattle numbers had not grown that aggressively since the early 1970s. The average upcycle inventory increase is about 1.6%, and the average down cycle year-over-year change is close to 2.0%.
Currently, the U.S. is in the second longest herd expansionary phase since the cycle that began in 1976, posting four consecutive years of annual inventory growth. Larger calf crops tend to put downward pressure on prices, particularly in the fourth quarter. January of 2018 showed another 0.7% increase compared to the previous year, which would indicate that 2018 fall calf prices should be again the low price point during this calendar.
So far in 2018, prices have been to slightly higher of the where seasonal indexes would suggest, up 3.2% for the first quarter of 2018. Higher than normal prices are not expected to hold through the year. The ten-year seasonal index indicates more potential downside than upside moving through 2018.