Replacement Heifer vs Feeder Heifer Spread

Replacement Heifer Prices

There is currently considerable focus on growth of the U.S. and regional beef cow herd, with many producers and market analysts closely watching cull cow slaughter rates and bred female demand. Additionally, there have been a lot of comments from local auction markets all over the country that heifers suitable for breeding replacements have been bringing as much as similar weight steers. In this week’s Cattle & Corn Comments, we’ll examine recent replacement heifer premiums in South Dakota auction markets.

Table 1 shows the prices for several weight classes of feeder steers, feeder heifers, and replacement quality heifers as designated and reported by USDA Agricultural Marketing Service (AMS). These prices are the combined weighted average auction market results from about seven markets across South Dakota for the week before Thanksgiving for each of the last three years.  Prices have increased to record, or near record prices, this fall and are about $20/cwt higher for the weights of calves reported in Table 1. Of interest and focus here, though, are the spreads, or premiums, of feeder steers compared to feeder heifers and the difference between replacement quality heifers and feeder heifers, which are shown in the last two columns of the table.

First note that feeder steer prices are more than $20/cwt higher than feeder heifer prices for 450-549 lb calves this year. The feeder steer to feeder heifer spread was $17-18/cwt for 550-649 lb calves. These spreads are $2-6/cwt larger than they were a year ago. That the feeder steer to feeder heifer price spread is higher is interesting, and doesn’t support an increase in replacement heifer demand.  As replacement heifer demand increases, fewer heifers are sold for feeding purposes, thereby reducing the supply of feeder heifers. This tightening supply of feeder heifers would result in stronger prices for the heifers relative to steer prices.

A better gauge of replacement heifer demand, though, is to examine the premium paid for replacement quality heifers relative to similar weight feeding quality heifers (last column of Table 1).  As shown, the replacement heifer to feeder heifer premium was almost $10/cwt for 450-499 lb and 600-649 lb heifers and about $15/cwt for 500-599 lb heifers.  For the lightest and heaviest heifers in Table 1, this premium is $6-9/cwt less than last year.  But, for the 500-599 lb heifers, the replacement quality premium is almost $5/cwt higher than in 2012.  With producers more focused than ever on replacement heifer development, the 500-599 lb heifers likely represent the ideal or optimum weight to begin with now to be bred early next summer.

While the replacement heifer to feeder heifer premium is not consistently higher across each weight category this year, the strength in the premium for the middle weight classes points to increased increase in herd rebuilding.  And, that’s significant when compared to November 2012 prices because significant herd rebuilding plans were unfolding then, with increased heifer retention by the end of the year. Recall, though, many of these replacement heifers were culled later in the spring as drought conditions continued and high feed costs prevailed.

The lack of a strong trend in replacement heifer premiums relative to previous years is also caused by differences in the volume of head in each weight category and class. Additionally, the prices reported in Table 1 are for only one week (the week before Thanksgiving). A longer term average across the replacement heifer buying season would give a clearer indication of whether replacement demand was increasing or not.

The annual Cattle Inventory report, to be released next January, will provide more clarity as to whether beef heifer retention is increasing.  For now, though, it appears like there is a fair amount of replacement heifer interest in South Dakota auction markets.

Table 1. Feeder Steer, Feeder Heifer, & Replacement Heifer Prices & Spreads, South Dakota Combined Auction Market Average, Week Before Thanksgiving 2011-2013

November 25, 2013 Spreads
Weight Feeder
Steers
Feeder
Heifers
Replacement
Heifers
Steer To
Fdr Heifer
Replacement HF
To Fdr Heifer
450-499 204.72 183.29 193.24 21.43 9.95
500-549 196.96 177.09 192.16 19.87 15.07
550-599 186.47 168.75 184.00 17.72 15.25
600-649 178.49 161.27 171.65* 17.22 10.38

 

November 19. 2012 Spreads
Weight Feeder
Steers
Feeder
Heifers
Replacement
Heifers
Steer To
Fdr Heifer
Replacement HF
To Fdr Heifer
450-499 171.65 156.30 176.13 15.35 19.83
500-549 167.82 150.52 161.16 17.30 10.64
550-599 161.82 146.42 156.90 15.40 10.48
600-649 149.75 138.21 154.65 11.54 16.44

 

November 21, 2011 Spreads
Weight Feeder
Steers
Feeder
Heifers
Replacement
Heifers
Steer To
Fdr Heifer
Replacement HF
To Fdr Heifer
450-499 175.67 160.19 173.22 15.48 13.03
500-549 169.48 155.70 183.68 13.78 27.98
550-599 162.64 149.78 159.73 12.86 6.95
600-649 157.88 151.54 166.63 6.34 15.09

 

Data Source: USDA AMS
*Estimated


The information in this report is believed to be reliable and correct. However, no guarantee or warranty is provided for its accuracy or completeness. This information is provided exclusively for educational purposes and any action or inaction or decisions made as the result of reading this material is solely the responsibility of readers. The author and South Dakota State University disclaim any responsibility for loss associated with the use of this information. There is substantial risk of loss in trading commodity futures contracts and traders should consult their brokers for a full disclosure of these risks to determine whether such trading is suitable for them in light of their circumstances and financial resources.

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