The high percentage of total cattle that are heifers on feed continues, indicating a smaller breeding herd in 2023 and 2024. The steer and heifer price difference can help slow down some of these placements. Heifer calves are favored over steers due to their tendency to finish at lower weights, lower daily gains and higher feed conversions. Large price differences provide an incentive to keep heifers in the herd. This difference varies over time with the cattle cycle and the availability of total feedlot cattle available in feedlots to place feed seasonally.
Nebraska feeder cattle are a good indicator of how these price differences change over time, within the season and by weight class. Price differences are greater for lighter cattle (500-599 pounds) and heavier cattle (700-799 pounds) due to lower price weights (see Tables 1 and 2). In Nebraska, the price differential for lighter-fed cattle is greatest in the winter and slowly decreases throughout the year. For heavier feed cattle, the price differential rises throughout the year, peaks in the summer, and then declines again. During the cattle cycle, price differentials tend to widen during periods of contraction and narrow during periods of growth. The magnitude of these price differences varies greatly depending on market conditions and overall consumer demand.
However, higher prices for feeder cattle tend to widen the top of the range (i.e., steer prices rise faster than heifer prices due to finishing ability), which means larger heifer discounts. It looks like that will happen this year. The price differential for both light and heavy feeder cattle is historically much greater this year than it has been in the past 5 years. For example, March price differentials for feeder cattle weighing 500-599 pounds averaged $13.51 per cwt. during the last 5 years. This year, the price difference was $27.68 per cwt. The price differential for both light and heavier feeder cattle has been greater than the 5-year average in nearly every month this year and has been the largest in the past 5 years. The price difference reflects a higher premium for steers due to higher prime feeder cattle prices and provides some lower incentives to begin rebuilding the beef cow herd — at least through 2024.
The actual steer-heifer price differential for October-December 2022 is still unknown. Given historical patterns, we can expect the price spread to be smaller than the price spreads earlier this year, but slightly higher than the 5-year average. That would put steer-heifer prices in the $15-$17 per cwt range for fed cattle in Nebraska. Feeder cattle 500-599 lbs and $7-12 per cwt. For feeder cattle 700-799 lbs. A caveat is that the steer-to-heifer price differential for cattle sold by video auction outside of the North Central region for delivery in September, October and November suggests that the price differential could be larger (see Table 3). Feeder cattle weighing 500-600 pounds for delivery in November have a $23.69/kwt price difference, well above our normal expectations for this year. Of particular interest is the sharp narrowing of the price gap in the heavier weights this fall (see Figure 1 above). This contraction is entirely due to the change in heifer prices between about 700-900 lira. In other words, there is a significant premium for delivering heifers at higher weights this fall, which could further delay herd rebuilding efforts.
One of the major trends over the last 20 years has been for carcasses to meet restaurant steak specifications and a preference for reducing the amount of trimming during processing. Under these circumstances, heifer carcasses would be preferred, and if this constituted a large proportion of total beef demand, historical patterns of steer-heifer price differentials could be affected. However, with higher wholesale prices, large carcasses may still be preferred because it will spread some of the processing costs per carcass over the extra pounds of meat.