What are feeder cattle used for?
Worldwide consumption of beef approaches around 60 million metric tons annually. Feeder cattle are a vital part of the global ecosystem of beef production and an important commodity in world markets. Beef farming is, therefore, an important economic activity, and experts say fed cattle can make money, even as high input costs continue to plague cattle-feeding profitability.
The beef industry is a global industry with an economic impact in the trillions of dollars. Beef production creates millions of jobs including suppliers, distributors, and retailers. Ultimately, live cattle produce the beef and by-products consumed around the globe.
There are two types of cattle futures to trade when addressing beef futures: feeder cattle and live cattle. While feeder and live cattle are related contracts, each has its own characteristics that affect supply and demand.
Livestock traders distinguish between two types of cattle – feeder cattle and live cattle. The difference between these two commodities is the stage of the production cycle. Feeder cattle are weaned calves that have reached a weight of between 600 and 800 pounds. At this point, feeder cattle are put in a feedlot where they consume a high-energy feed diet consisting mainly of corn and other grains. Feeder cattle typically need to gain more than 500 pounds before they reach slaughter weights, so corn prices have a big impact on feeder cattle prices. Live cattle, on the other hand, are ‘finished’ products that are ready for sale to slaughterhouses.
The first nine months
In the USA ranchers will traditionally breed their cattle in the summer which will produce calves in the spring. On average, a newborn calf will weigh 70 to 90 pounds at birth. Before a calf is considered a feeder, it has already been gone through the process of being born, weaned, and sent out to graze for up to nine months.
Feeder cattle are weaned calves that have been raised to be 600-800 lbs. Once a calf reaches a minimum weight, it is sent to a feedlot with the goal of putting on weight aggressively. Feeder cattle receive high-energy feed to promote weight gain. They are usually either steers or heifers. Cows and bulls generally are kept for production and not placed in feedlots.
Traditionally, feeder cattle must be mature enough in order to go to the feedlot and be fattened prior to slaughter. The process of transforming feeder cattle to live cattle usually takes between 3 to 4 months. Once again, the feeder cattle put on weight aggressively in the feedlots to reach the desired finish weight of 1,000-1,300 lbs. Corn is the best way to quickly fatten feeder cattle; therefore, the price of corn has a direct effect on the price of feeder cattle.
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Live cattle are full-grown cattle that have reached the necessary weight for slaughter. Cattle typically get slaughtered for meat and other by-products when they reach a weight of between 1,200 and 1,400 pounds, but this can vary. Traditionally, live cattle remain on the feedlot for up to 5 months (after being moved from the feeder) while they put on an additional 500 lbs. Feedlots go on to sell the live cattle to meatpackers that slaughter the cattle. The average slaughter weight is about 1,250 lbs. While slaughtered cattle have value from their hide and other parts, the majority of the price comes from boxed beef cutouts. Boxed beef cutouts are the major cuts that are often deboned and are packed and sealed in cardboard boxes.
The cattle-feeding profitability
Cattle producers and backgrounding operations balance feeder cattle prices, weights, time is taken to fatten, death rates, and other feeder cattle factors against feed prices, live cattle prices, and other operating factors to profit from their operations. Shawn Walter professional cattle consultant says that fed cattle can make money, even as high input costs continue to plague cattle-feeding profitability. He believes that’s why anything cattle feeders can do to improve performance is important.
Just how important that performance really is revealed in a detailed study on cattle-feeding profitability. The study found that monthly profit and loss can range from a repressive $250/head loss to a take-it-to-the-bank $350/head profit. With high feeder cattle and ration costs putting fed-cattle breakevens in the $1.25/lb range or higher.
Market participants generally expect there to be a high correlation between feeder cattle and live cattle prices. Cattle traders often construct hedges to trade the relationship between the price of live cattle and the price of feeder cattle and grains. The trader might buy (or sell) feeder cattle and corn futures and sell (or buy) an equivalent weight amount of live cattle. Traders have to estimate the hedge ratios of the different components in order to be completely hedged.
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Main uses of feeder cattle
Cattle have various use cases over the world. The most common categories with examples of what cattle-derived goods are used for:
Hamburgers, steaks, and roast beef are among the many products produced from beef.
• Food by-products
By-products of beef production include the following: liver, kidney, brains, tripe, sweetbreads, and tongue are food sources in many countries. Oleo oil and stock are produced from beef fat and used to make margarine and shortening. Oleo stearin is an edible solid beef fat used to make some chewing gums and candies. Gelatin from cattle bone and skins is used to make marshmallows, ice cream, canned meats, and desserts.
• Beef hide
The beef hide is used to make a variety of items: leather, felt, some textiles, base for ointments, binder for plaster and asphalt, the base for insulation material, brushes, footballs
• Non-food uses (beef fats and fatty acids): some industrial oils, lubricants, soaps, lipsticks, face creams, hand creams, chemicals, pesticides, and detergents derive from beef fat products.
• Bones, horns and hooves
Buttons, piano keys, glues, and fertilizers are some of the many products made from bones, horns, and hooves of cattle.
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