 This is Tim Petrie, NUSU Extension, Livestock Marketing Economist. Today we're gonna visit about the cattle price situation outlook, particularly as it pertains to backgrounding. A little disclaimer, I'm doing this on November 9th with November 8th prices. So you may be viewing this in a week or two or later and prices will be different because they're changing as I speak. So please keep that in mind. So, you know, this is the time of the year where cattle producers are making the decision whether to background or sell. I'm doing this recording in conjunction with three of my counterparts and they also have a very important message to you and I'll be referring that as we go along here, corn prices are high and so Karl Hoppie is gonna be visiting with you about alternative rations and feeds. So important to listen to his obviously cost and returns and projecting them and working with your lender of various barns. So Brian Parman is gonna be discussing some alternative budget scenarios and different weight groups and so on. So be sure to listen to his. And then also the health is very important for these new calves that we background so on. So Dr. Jerry Stucka has a health management concerns and so I urge you to view all of those videos. But anyway, today we're just gonna discuss kind of what the prices are for calves going in and then what you might expect for prices coming out of a back browning program. So here are some of the fundamentals that are affecting prices now. Obviously both corn and fed cattle prices are the two most important factors that affect feeder cattle prices. And both of those are relatively high. Corn prices at ethanol plants now are 605 to 655 but on the other hand, fed cattle prices are the highest they've been since 2015. And what's important is also that the live cattle futures into next year when the feed lots by your background cattle when those cattle were finished. And so those are things that we're gonna visit with. We do have a smaller calf crop which is very supportive to calf and feeder cattle prices. As I do this April live cattle trading at over 158. So there's good demand for over 700 pound steers that'll make that April contract. But again, later contracts still are above what they've been the last couple of years. And so prices are moving cyclically higher on the fed cattle side. We're gonna challenge those 2014, 15 highs and feeder cattle probably in a year or so. So that means higher prices ahead but cattle and corn prices although moving cyclical higher are volatile. There's a lot of geopolitical factors whether corn prices, everything else that causes volatility in the market. So we will view that and maybe some price risk management as I say down in the line there might be something to consider. So it's important to compute your costs. Obviously develop budgets discussed with your lender. Look at the Dr. Parman's budget city presents and Carl Hoppe's alternate feeds and so on and the health issues from Jerry. We do expect seasonal volatility to continue. So even though prices might move cyclical higher we certainly should consider price risk management strategies. Start off with corn then as we mentioned last couple of years corn prices have been higher but that doesn't mean that we can't background calves. And for example, I like to use Omaha prices because that's where the feedlots are that might buy our background at cattle and they look at then what the distant fed cattle futures are and what corn prices are and that determines what they can pay for for a feeder cattle but corn prices in Omaha last week average 723. On the other hand, you go above that on an earth Dakota ethanol plant today is paying 605. So our corn up here may be over a dollar cheaper than down here. So that might bode well for a backgrounding. We can backgrounding the feedlots prefer to buy the heavier weight cattle that have been backgrounded cheaper then and then they can finish them off with higher corn prices. So certainly a backgrounding might be an option for us but the market is very volatile. People ask me why is the feeder cattle futures so volatile? And one of the reasons is because corn prices are so volatile. Let's just look at what happened this year and apps could happen again next year. Start off the year back in February, corn prices are down there about 590 and the feeder cattle futures up there 188 and then report came out that we're gonna have a couple million fewer acres of corn and then Putin invades Ukraine and Paul the corn prices go skyrocketing up there to 760 or so. And likewise then there's that relationship change corn 10 cents a bushel change feeder cattle buck in the opposite direction. So that kind of played in here and starting off there to 188 with feeder cattle back there in February. And so like June when corn prices did spike there we bring feeder cattle down to 171 but then it looked like we're gonna get a good harvest and whether it was conducive in the corn belt and some issues with recane that they could ship. And so then corn prices plummet back down to 570 and feeder cattle go up to 199 and then harvest approaching it doesn't look like we're gonna get to yields possibly than we had maybe some other geopolitical features going on there. And so then corn goes back up to that 675 to $7 area and feeder cattle go back down to 175 but now in the last month or so corn is stabilized and went down the last week or so and so feeder cattle back up there to about 180. So looking into next year here with these January feeder cattle that might be something that we could expect around 180 for prices. And so here's the calf crop. It went down, you see the last several years four years in a row. So fewer calves is certainly supportive to prices with fewer I think we've got about a million fewer calves to sell this year. So that's supportive to prices. Then let's go to Fed steer prices here and just talk a little bit about the key that would be the same on the previous charts. The red line is always this year's price and then the blue line is 2021 the purple line is 2020 and then the green line is 2019. And so let's and then the orange squares there are the futures market for next year and if there's a still futures market trading for this year 2022 that would be a red square and that's the case for the Dease cattle futures up there. But anyway, Fed cattle prices have averaged $20 above last year supported by pretty good domestic demand for beef and then record exports. And so again, we went up the entire year from about 140 to 152 last week was the highest price since June of 2015. And then again, what's important are those orange squares there are the futures for next year that feed lots buying our background at calves would use as a guide to what they can pay for feeder cattle and they are actually up at record high levels. 2014 average Fed cattle price was 153.84. And if you average those six futures contracts for next year they average 157. So that would be record prices for Fed cattle obviously supportive for feed lots paying for our background cattle coming out whenever that might be January, February, March or whatever. And then not on the key, but on the top very top left up there another $10 higher on futures for 2024 but probably not as important for the background that we're talking about here but we do look for sickly client prices for all cattle for the next several years. So let's go to the 506 pound steers and what they're doing because in some cases you're just going to feed your own calves so you need to price them into a backgrounding program at the current market price or in some cases you're gonna buy them. So cap prices have been supported by the fewer numbers even though feed prices are high and also by those distant Fed cattle futures. And so last week we averaged right at just under 207 but again, that's the average as a wide range and cap prices we'll look at a minute that might show some opportunities for backgrounding or selling and so on. So when we look at the market report we'll get a better idea of what we can price our calves in. Anyway, they're better and again on a cyclical basis expect them to go up but here we're kind of interested what's the current calf prices and then is there potential for backgrounding? So go to the heavy weight yearling prices which would be the backgrounded cattle and again they're been averaging $20 above last year a little seasonal weakness like on the calves here but trading in that 175 to 180 area now and kind of that's where the November futures are. But again, our backgrounded calves be coming out in January, February, March maybe even into April in a few cases and in the cases of heifers. And so let's look at those orange squares up there. And so starting off in January they were trading right at 180 and then move up to 182 in March and 185 in April and so that would be somewhat prices that we could expect for spring calves or if you wanna make sure you do some price risk management and lock in prices there using some kind of price risk management that we'll visit with in a minute. So again, it all depends on your budget what your price calves in and in your budget what your expected prices are out and so we're just kind of giving you a guide here. Here's the market report for last week for calves sold in North Dakota and a lot of issues pertaining to background that we can talk here. Again, let's go to that purple circle there in the minute I mentioned that we're just under 207 there on 550 to six weight calves but that's an average of wide range and prices there for calves all away from 187 up to 227. And so with that wide range you know, if you're buying calves and you're looking at the high end of those 227 calves up there are $1,300 ahead you know, you're gonna have to have a good price coming out I think to make that work again you have to plug it into the two Brian's budgets and on the other hand, if you go down to 190 or so you know, you're cheaping them up by a couple $100 and maybe good chance to background those calves and add value to them. So it all depends on what you price your calves in and so on and wide range there and know what you have and what you're going to buy. The other nice issue to talk about is you see those big discounts for those fleshy calves going on down there and so feed is high and so you don't wanna get them too fleshy because they're gonna be discounted in the market so you've paid more for feed for a discount. And so I know we all like to feed our cattle well and see them gain weight and so on but let's just be careful and not get them too fleshy and so we don't get discounted on them. The other thing is heifers are severely discounted this time of the year and so go to that arrow up there an example those 450 to 500 weight heifers are you know, at 193 across there in that arrow compared to 223, 224 average price on the steers. So you know, you've got a $30 discount there on heifers and so we do keep a lot of heifers in North Dakota and background for a very good reason because every 50 pounds they gain on steers they gain in price whether the market's going up or down and so go to that bottom arrow on the chart there you see 750 weight to 775 pound steers at 174 heifers only at 170 so only a $4 discount there so we can add value the more weight we put on heifers by backgrounding them the closer they get to steer prices and maybe easier to pick up money there and we do do a lot of backgrounding of heifers and I would encourage you to consider that and Brian is gonna show you some budgets there. So, you know, hindsight is 2020, whatever and we know what's happened before looking ahead to 2023 and even though we have cyclically higher prices expected actually for the next several years there's still risk with all the different factors that can affect the market from geopolitical issues you know, the Russia-Ukraine war is still going on and North Korea is shooting missiles into the sea by Japan and Brazil just has a new president know what's gonna happen there and then you throw in all the drought or blizzards or other things that can affect the market and diseases even influenza and so on and when we sell these backgrounded catalysts at one point in time and so we're risking what the market is at that point in time so even though cyclically higher prices are likely there could be something that affects the market therefore a month or two that would cause lower prices and remember back to that corn and feeder cow charts so certainly just because we expect higher prices cyclically let's not throw price risk management out the window and I would encourage you to visit with your lender and discuss whether that should be part of your marketing plan there are a number of price risk management tools that we can use it I don't have time today to explain all of them to you and would be glad to provide information education on that and you would need to see your extension agent and have them set up a meeting but maybe we could forward contract with a feedlot or internet auctions if you're familiar with futures and options something you could consider a livestock risk protection is something I'm gonna visit with you a little bit but again don't have much time it might be a combination of these different tools that you would use but if you don't manage risk and again it could be risky into that time period so again discuss with your lender so here's the March feeder cattle futures contract the high loan closes and then the markets went up and down we're right at 182.15 closed today and there's the cash settlement price below that LRP is based on that I'll visit with you in a minute so the market now was saying that we should have up in the 182 above and in prices this spring when your background cattle come out another tool that you might consider is livestock risk protection it does give us a lot of flexibility in that we can do both steers and heifers and the real advantage I think of it is that we can do any number of head of futures contract or options contract 50,000 pounds but here we can do a few head and you might wanna do a few head to begin with and it's a very good tool to learn about price risk management without having to risk a lot of money and then you could do a few now and a few later or if you're familiar with it, you could do more and so every afternoon at 3.30 the website shown there in blue USDA just puts out what their price offerings are for the date today and how much it would cost you and the nearest contract that we can get now is materials February 7th and every day that just goes a day later and then you can go into March, April, May all the way through for a year if you want to but here background and mainly interest in January, February and March just for example, I use the highest offering price for these categories but they offer a whole series of prices under this for instance, going across for that top 800 pound steer for a February 7th maturity date there at 180, 53 is the highest price but they offer a $2 down prices way down 10 or 12 units down and you could even get a premium down less than a dollar but it wouldn't have a lot of coverage there and the current CME cash settlement price is 176.59 that's the price you're really betting against changes daily and it's on the CME website and the history is shown back there on that chart where the March feeder cattle futures are and then again, go into March we can get a little higher price for February cattle coming out in February up to the beginning of March or we can look in a contract with Turing in April for those cattle coming out in March and the prices again are going up seasonally there so almost get to almost 182 for that April 4th contract and then again, we have contracts for heifers heifers are always 10% below steers the price offering and so on so we could cover both our steers and heifers and you see January futures 179.90 and March and 182.15 correspond quite well with those prices being offered so again, I'm not advocating any one price risk management strategy over the other if you're familiar one and it works well for you use it and if you need more education want to investigate some others, I urge you to do that but anyway, a wrap up here that's a little bit of our expectations for price and again, I urge you to look at those other videos of the other folks and do some backgrounding and with that then we're going to close