 Great to be with you, Tim Petrie, extension livestock marketing economist. When we're visiting about this webinar, you know, we have record high cattle prices and record high volatility as well. So we thought it would be good to discuss some of that. And so I'm gonna give a quick update on cattle price outlook for feeder cattle and also do a little bit on price risk management. I've been doing quite a few educational sessions already and sometimes spend 40 to 50 minutes on each one of those. And we have a lot at less time today. So I'm gonna go through this relatively quickly and just hit the high points. And so without further ado, let's just move along. The three most important factors that affect feeder cattle prices are supply of feeder cattle, corn and feed prices and then fed cattle prices. So let's begin on the supply side. You see here the USDA does an inventory report twice a year, January and July. So here's our July feeder cattle supplies outside of feedlots. And you will notice looking up from the bottom key there for 2023, our feeder cattle supplies are currently the same as they were back in 2014 at the lowest levels on the chart. And back in 2014, we had record high prices. So no surprise that in 2023, we're back to record high prices again, very much supported by this low supply. This will be the fifth straight year of declining cow numbers. So we've got four lower calf crops and next year the calf crop will be even lower. So that certainly supports prices. Next, then we go to feed prices and corn prices. I like to use Omaha corn prices because that's where the feedlots are that purchase our feeder cattle. And there's the old adage on the top there. We changed corn 10 cents a bushel, changed calf prices, a buck in the opposite direction. And so last year at this time, we were talking $7 corn. We started out this year with a red line there at $7. And by the way, my charts are all color coded the same way this 2023 will be red and last year 2022 will be blue. And the purple will either be a five year average or it will be 2021 previous years and get to that when we talk about cattle. So not good for those selling corn but good for your cattle with that rule of thumb we use on the top started out at $7. Last week, the average price at Omaha was 465. And so that $2.35 decline of corn prices has really been positive for feeder cattle prices. And another thing while we're talking about corn is in the upper right hand corner you see an ethanol plant in North Dakota today was paying 385 for corn. And so that's 80 cents less than Omaha. And so we do background a lot of cattle in North Dakota. And one of the reasons we do that is because feed is cheaper, corn is cheaper. And then we have a lot of alternative feeds that work very well in a backgrounding ration. And Omaha, of course, they want to buy the feedlots they want to buy 850 steers and heifers rather than the lighter ones and let us do it cheaper up here. And then they buy the weight and then they pour the coles to them with their more expensive corn. So the feed situation up here certainly favors backgrounding and the declining corn prices have really added to and supported feeder cattle prices. The other thing then that affects feeder cattle prices are fed cattle prices, particularly in those distant futures when those feeder cattle that the feedlots purchase will finish out. So because of shorter supplies then good demand for beef as well. Fed cattle prices are the red as the red line you see there are at record high levels on a cyclical basis. The last cyclical low was in 2020 a terrible year with COVID and $95 fed cattle. And we've been increasing since then. And so this year in mid year there we were $40 higher than last year up there at 184 and we're still $20 higher than last year. So that price is certainly also supporting feeder cattle prices. The gold square there are the futures for next year that are now showing maybe a little bit lower than they are this year but the live cattle futures have fallen off quite a bit here in the last couple of months. And we can do better than that on fed cattle next year if the stars all align back you'll see there in the upper part of the chart on September 15th live cattle, the April 2024 live cattle futures were up there at 193 and now they're down there at closed at 174.87 about 175 days. So they have been higher. USDA's last estimate for fed cattle for next year is 184.50 which would be higher than the futures are now but that's just where they're at now but these higher prices are certainly supportive to feeder cattle prices as we'll see now. So here's the 550 to six weight calves kind of the same story there. We've continually increased cyclically the last several years. And then this year with the lower corn prices and the record high fed cattle prices we have moved up to record high levels for feeder cattle as well. And $70 some dollars higher than they were last year. So what that means from a backgrounding standpoint is we're gonna put the most expensive calves that we ever have into the feedlot for backgrounding. And so when we get to talking a little bit about price risk management just probably another reason to do that. Again, seasonally we do back off after the summer highs and go down as the bigger supplies hit the market but they're still supported up there at record high levels. And some things that can affect that towards the end of the year sometimes we see a bump in prices. Sometimes we get that from winter wheat demand down south not as good this year although it has started raining down in Oklahoma and Texas now and the wheat is greening up but they're gonna use some of that to keep their coward because there's interest in rebuilding where they can do that. Corn belt buyers once they get the corn in the bin after combating then they tend to come in the market and we're just wrapping up harvest now. And again, the longer we go the longer the chance for the calves to be wean and that might add some support. So there's a chance there that we're kinda at seasonal lows now and that but just keep that current price in mind. And later when Dr. Parman talks about budgeting that's one of the big costs is or if they're your own cattle again they're gonna have a record high value there but cattle feeder calf prices are well supported by lower corn in the higher fed cattle prices. Go to the heavy weight yearlings and these would be the calves that would come out of our backgrounding program again the same story as we've ratcheted prices up there is a feeder cattle futures for 800 pound steers and again there in the gold bars there the red line is what they've done this year. You see that seasonal peak in September that usually occurs it's occurred the last three years and again this year and more and not in a minute. And again the same thing on the futures market there the futures for this in January and then March, April and May depending on when your backgrounded cattle come out you know around 230 is would be a planning price to use now. They work again quite a bit higher than that and more on that in a minute and they could but you know there's a risk that we're gonna talk about but in general then the prices are really being supported by higher fed cattle and the lower corn prices. So here's the market report actually from the week before last week. Last week USD only reported one market a low volume because of the Thanksgiving holiday. So this had there's three markets reported by USDA in North Dakota that's Napoleon and Kiss and Mandan and Stockmans and Dickinson. And so this is a summary of that market and again I could talk about this probably for about 20 minutes but just wanna hit some highlights here as well. On my charts I just used the average. So in the middle of the chart there you see for 550 to six weight steer calves is would be the ones that would be priced into a backgrounding program. 272 was that average that I showed you on my chart but you see the wide range there. The same weight and grade of calves at the same market. So from 248 to 286.50 that's a 38.50 dollar range as it shows there. So if you're gonna buy the 286.50s or if that's the value of your calves certainly they need to be into a high value program coming out as backgrounded steers. So when you might consider if you're buying them maybe buying more of the average or to the lower end and adding value to them and would be a good thing to do in a backgrounding program. The other thing is that heifer calves are always this time of year discounted quite a bit from steer calves. You see their counterpart 550 to six weight heifers that they're at 243 almost a $30 difference when they're that at the lower weight every 50 pounds heifers gain, they gain price. And so we get down there to those 8.50 to 9.8 heifers and steers are the same price. Actually the heifers a little above but they're a little lighter the 8.66 heifers at 207 over a week ago in the 8.89 steers at 204. So we always do background a lot of heifers usually budgeting shows that we make good money on heifers and again that's a later talk that we'll talk about. So just some other things I'm sure we're gonna background or keep a lot of heifers. And then another thing about heifers you see that there's already on the right hand side there there's already replacement heifers bringing premium prices in this spring. That's gonna be the case again I think again like I said there is interest in herd rebuilding where moisture is better West River North Dakota had good weather this year and probably interest in some keeping some heifers and herd rebuilding there. And even now it's raining down in Texas and Oklahoma and California is in better shape. So replacement heifers are gonna be at a premium and so backgrounding them and making replacements out of them is something. Well, and then it gives you flexibility and if it turns dry in the spring again we can sell them as feedlot heifers and we've added value. The other thing I just wanna quickly mention over on the steer side is yeah we certainly encourage backgrounding and backgrounding is putting weight on cattle but just be careful so you don't get them too fleshy because you see down there those 712 pound fleshy steers are $10 off their counterpart average and so just be careful that you don't put too much groceries in them and push them too hard so that you take a discount on them. So just move along then we've had extreme volatility in the market and so I've always been getting a lot of questions. Why did both the futures and the cash prices decline after September 15th? And it's all for very good reasons so we'll start first with the futures market on the two charts on the left hand side and then we'll have already kind of introduced you to the cash market side but let's just go there. The November feeder cattle futures closed on they usually closed the last Thursday of the month but because that was Thanksgiving they actually closed on the 16th. But anyway, go back to September 15th. You see the everything was very optimistic and the speculators and the funds had really got into cattle other the grains were somewhat surfing you saw corn going down and some of the others so the cattle was a hot item to get into so they ran the November futures up there to $268 but the green line is the CME cash settlement price and that's an important price for two reasons. One, that's when the November feeder or any contract closes all open contracts are closed by that cash price which is a I'll show you what it is in a minute when I talk about LRP but it's just a national average price computed by all the USDA market reporters and then the CME comes up with one price. So you see the cash price was down there at 253 but the futures were up at 268 but they gotta be, you know when we got to the September futures closing and then the October and then the November and now we'll look at January in a minute they gotta be the same and you see I left this November chart on there even though it's closed because they were the same both the futures and the cash settlement price were right at 229 at the end just like they always are but they had to come together. So back to September 15th the futures started going down so it could get down to the cash price and that'd be a very normal situation people that were along the market started selling because they knew that they were gonna be together so they did get down then there was talk then in the middle of October that a cattle on feed report come out showed we had a few more cattle on feed in the last year and again the market kind of crashed there for a couple of days because again the Chicago traders said, oh my gosh USDA missed it we've got more cattle around than they thought and you know whatever and that wasn't the case at all you go down to the chart on the bottom shows you what happened because it was so dry in the south and 50% of our coward was in drought this summer and it's gotten better by now but we had a record we have still have a record amount of heifers on feed simply because they couldn't keep them and somewhere intended as replacements but they had to go on feed so all those heifers on feed we didn't have any more cattle than we had before the report came out it's just that we put a lot of heifers into the feed lot instead of making replacements out of them because we were out of forage so again then the cash market went down and the futures did come back up to the cash market and that's how they ended up on the cash market side then I mentioned this before but September is always a seasonal high for these heavier weight yearlings and then they go down in fact continually go down into March when a lot of them are sold and that's happened the last three years go to the blue line last year they were up there 190 and you know dropped to 170 in previous years if you go down to the bottom chart that is the 10 year seasonal price index for these 758 weight steers and all an index is this is a 10 year index so you just add up all the average prices for September divided by 10 and for all the other months and see which ones average the highest and so you see September average is 5% higher than they are now and then by the time you get into March lower so that's a normal seasonal thing so when we get to price risk management kind of remember that that's September when for the cattle that you're backgrounding into the spring be it January, February, March, whatever September is a really good time to look at price risk management but that wasn't unusual that again that decline in the cash market can be expected to happen and that happened like other years here's the January feeder cattle futures and again kind of the same thing there you see back in September and lately again, we've just had extreme volatility the last three days we had, you know all not quite limit down but $5, $6 declines just because the decline in the futures market is triggering people to get out of the market and so but the cash market hung in there and so all of a sudden the futures got way below the cash market and down there to under $2.15 and so today then as should have happened the futures went up the limit, the $8.25 limit because it's got to catch up to the cash market there was up there at $2.30 and although we'll see this is always a day behind but yesterday's cash market did drop off some but still the futures are below the cash market so that supports the futures market in going up more on that limit movement in a minute because that does affect livestock risk protection so here's the cattle price cycle again, we are on the upward side and we're gonna have fewer calves next year and it all depends on corn and those other factors but it looks like prices are going up so you look at this and you say well, Tim says prices are gonna be higher so we don't need price risk management but that is not it at all I still encourage price risk management particularly on a seasonal basis like backgrounding or summer grazing that even though the cyclical trend this is year to year now is gonna be higher there's certainly risk for all the different things that can affect the market what's corn gonna do is it gonna dry we have all the geopolitical issues and war in the Middle East and high inflation and high credit card debt with consumers and on and on and on so there's always risk so from a cattle price standpoint we're in the increasing phase but when we're at record high prices volatility is also record as we've seen so if you don't think price risk management is important just look at the past since September 15th of how the market went down and another reason for price risk management so if you didn't believe it before that is a good lesson for us that I still think that we should consider it because there's always a risk for lower prices so the best marketing strategy when we're in the upward phase of the price cycle like we are now is to lock in a floor price but leave the top side open because prices were higher a while ago and they could go up and so if that happens the corn keeps going down would be supportive to prices and so on so we wanna lock in a floor price and leave the top side open so there are two ways to do that one is livestock risk protection insurance the other's futures market options if you're used to using one or the other and they work for you that's fine I'm just gonna mention a little bit again I could spend 50 minutes talking about LRP and explaining it more but I don't have the time but I'm just gonna hit some high points because LRP is a good way to lock in a floor price and then leave the top side open and it gives us some more flexibility than the futures again the feeder cattle futures is a 50,000 pound contract for 800 pound steers where LRP is for you have an under 600 pound contract and for beef steers and heifers so you have two contracts there and then a six to a thousand pound beef steer or heifer both contracts the thousand pounds is in red there because that was a recent change it used to be six to eight, 99, 900 pounds but now they raised it to a thousand pounds so we picked the weight and the insurance period then is 13 weeks in advance all the way and again I have policies may be available for the following weekly links and yesterday the LRP did offer 13, 17, 21 in the 13 week contract if it would have came out today would have matured on February 27th so if your cattle are coming out in January it's a little bit too late for LRP but when the market moves the limit in a contract month then LRP is not offered for that month and the next month so today's offering were the 13 and 17 week that would be for February or March were not offered because of that January feeder cattle moved the limit tomorrow if the market doesn't move the limit then those will be offered again so what's offered right now after 4.30 today until 8.30 tomorrow morning the closest one we can get is April so if you're back on the cattle into April you could still buy one today but not for the February or the March and today they just offered through the 39 week which is all the way out into August after that is kind of a little further out but they'll add those later and the real beauty of LRP is you can do one head if you want to 120 do a few at a time it's a good way to learn without spending a lot of money and so on so whatever number you have if you wanna do half of them or whatever you have that flexibility possibly unlike the futures so the LRP is based on that cash settlement price that we saw before and it comes out every day on the CME website showing there the current index is at 226.96 so yesterday all of the over 600 pound contracts, LRP contracts would have been closed at that price and so here's what the spreadsheet looks like every day then the market reporters send their information to the CME and they just do a weighted average and I took this from the 16th for a couple of reasons one it's the last Thursday when both Dickinson and Napoleon were reported and then it was the last day for the November feeder cattle so you see at the bottom there the cash settlement price was 228.64 and the futures were that that day so they were the same but it's all transparent and what it is there's a daily average computed that 226.98 over there at the bottom but the actual cash settlement price is a seven day moving average and so that's that actual cash settlement price and that's what you're betting on when you purchase an LRP contract it isn't the actual price that you get for your cattle the price that you might look at that current 226 and say well that's a really good price for 900 pound steers I'll take that but it's on the other end you see that's a terrible price for 650 steers so I'm not gonna do LRP but that isn't how LRP works LRP you're betting against that cash settlement price and that usually moves down about this or up about the same amount as those other market classes so you can use it but this is what you get paid on so here's what the offering today looked like then and again the closest one we could have got was this 21 week contract it matures April 23rd so the April futures closed today at 227.42 as you see in the bottom and USD if you go up there in the middle you see expected ending value USD expected the value on April 23rd to be 227 40 and a half cents was the right what the futures were and that's what they look at is the futures market then they offered a coverage price of 223.98 was the highest one and over there the other circled in green then was what you would pay per hundred weight and just kind of an aside kind of introducing the next speaker just keep in mind that you don't have to buy that highest coverage price we don't buy insurance hoping we're going to collect anyway we use this as a floor price hope the market goes up and we don't collect but for instance on our livestock economics website there's a budget in there that you can use for computing your own and our next speaker is gonna talk about budgets but that shows actually a 210 breakeven so we could go down under those coverage prices and go down for instance that second one from the bottom we could do a 233.98 still lock in a floor price above our breakeven and lower our premium from 696 to 385 but it's all between you and your lender what's your risk exposure how much you want and so on and also then it's very important what your breakeven price is so how you know what your breakeven price is is by doing a budget and figuring your cost and returns and so on so with that I assure you that the market is gonna continue to be very volatile and there is risk with all the geopolitical and what's gonna happen to corn and so on