Replacement Heifer Demand is Impacting the Feeder Heifer Market
By: Derrell S. Peel
There are indications that heifer retention is increasing this fall, although definitive data are not yet available. The delayed October Cattle on Feed report, due out October 31, is expected to show a deeper decrease in heifers on feed. Heifers on feed dropped sharply in the last half of 2012 then increased relatively in the first half of 2013. By July of this year, heifers on feed were still down year over year, but down only 3.5 percent compared to a 9.5 percent decrease on January 1, 2013. It appeared that more heifers entered feedlots in the first half of the year. This is further indicated by the fact that heifer slaughter has been higher by 2.7 percent since July after being down 3.7 percent, year over year, in the first half of the year. This bulge in heifer slaughter should be nearly finished and decreasing heifer slaughter is expected for the remainder of the year.
Meanwhile, auction market reports indicate that replacement heifer demand is picking up. A partial check of auction reports from around the country for the last week indicates at least ten markets where replacement heifers are noted in the feeder heifer auction summaries. The majority of these reports are in Nebraska and South Dakota but also in several other states as well. Heifers denoted as replacements are bringing significantly higher prices than uncommented feeder heifers of the same weight and class. The replacement heifers are priced with small discounts to comparable steers or even higher prices in a few instances. Based on Oklahoma City auction prices, 525 pound heifers (Med/Large #1) have been discounted to steers an average of 11.6 percent over the period 2008-2012. So far in 2013, the discount has average a little larger at 12.8 percent. In several specific cases last week, the replacement heifers were discounted only 2-4 percent from comparable steers, with some examples of heifers priced higher than steers.
In what is likely a hint of much more to come, the October 24, 2013 auction summary for Valentine, Nebraska is the most dramatic current example of breeding versus feeder demand for heifers. The summary includes several sets of four-weight to six-weight heifers selling as replacements. Several lots sold on a per hundredweight basis but denoted as replacements and several lots sold on a per head basis, bringing even higher prices. For example, heifers (Med/Large #1), ranging from 521 to 567 pounds, sold from $169.27/cwt. to $173.60 as feeder heifers but sold at $185/cwt as replacements or by the head for $1197.75 (527 pounds), which is equivalent to $227.28/cwt; and $1274.38 (564 pounds), i.e., $225.95/cwt. By contrast, steers ranging from 519 to 574 pounds sold from $192.24 to $205.76/cwt. Of the five-weight heifers in this summary, 45 percent sold as replacements, with only 55 percent selling as feeder heifers. I expect to see more of this range of heifer values, if not this fall, certainly next spring as long as forage conditions look promising.
I suspect that market reporters will have increasing difficulty accounting for the differences in feeder heifer and breeding heifer values. In addition to the “Replacement” comment (used when it is clear that heifers are being purchased for breeding), the “Fancy” label, which is applied to both steers and heifers of known superior quality, is likely, in the case of heifers, to increasingly represent breeding demand as market reporters attempt to account for price differences in heifers. I expect the overall discount of heifers to steers of the same weight to be smaller on average for the next couple of years if herd expansion is indeed underway.