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About Feeder Cattle (FC)
Feeder Cattle is the term used to describe cattle that are not
mature and of the proper weight to be brought to slaughter. Feeders,
or sometimes referred to as lean cows, are usually between the
ages of 12 to 18 months old when they are sold to feedlot operations
to be brought up to slaughter weight. Cattle of market weight
and maturity, roughly 1,050 to 1,200 pounds and 18 to 27 months
old, is referred to as Live Cattle, or Fat Cows.
The birth and maturity cycles of cattle are the major issues
that have to be considered when trading cattle futures. A heifer,
or female , is usually not ready for breeding until she is 14
to 18 months old. The gestation period for cattle is nine months.
Roughly six to eight months after the calf is born, it is weaned
from its mother. For the next 6 to 10 months the cattle is allowed
to mature. During the maturing cycle the cattle is allowed to
forage and graze.
After the cattle have matured sufficiently, the steers and heifers
are sold to feedlots. During periods of herd expansion, the heifers
are usually retained more frequently to increase the available
breeding stock. Once the cattle are approximately 600 to 800 pounds,
they are considered Feeder Cattle, or lean cows. The feedlots
are in the business of fattening the feeders up to a market weight
of 1,050 to 1,200 pounds. Feedlots usually feed the cattle a diet
consisting mainly of corn, meals, and other grain products. The
price of grain is the major component in the cost of feeding cattle,
so the price of grain directly effects the demand for feeder cattle
and the future supply of beef, or Live Cattle.
Cattle population usually follow a cyclical change every 12 years
- this 12 year cycle is known as the Cattle Cycle. Roughly seven
of the twelve years are herd expansions, and five of the twelve
years are herd reduction. Changes in herd sizes are fairly gradual
due to the gestation and feeding operations in place. Feedlot
operators are much more flexible in their operations, so Feeder
Cattle prices tend to be more volatile than Live Cattle prices.
The expansion phase of cattle herds generally coincides with increasing
beef prices and an optimistic future price outlook. During expansion,
heifers are held back to repopulate the herd, so supply is restricted.
The restricted supply tends to strengthen prices. But after the
herds are repopulated, and grazing land becomes over burdened
ranchers are forced to liquidate herds. As more supply is brought
to the market prices tend to weaken encouraging more inventory
liquidation. This process feeds upon itself until only minimal
cattle are left and prices increase to ration the available supply.
Their have been about seven Cattle Cycles since 1896.
Fattening cattle is a business requiring two main raw materials:
Feeder Cattle, and grains to feed the cattle. The demand for Feeder
Cattle is usually proportional to the demand for Live Cattle and
the profit margin generated from fattening cattle.
When profit margins are high, feedlot operators increase the
number of head of cattle on feed, increasing demand for Feeder
Cattle. When profits are small, or non-existent, feedlots decrease
the number of head on feed until profitability increases again.
The major cost associated with fattening cattle is the cost of
feed. Corn is the most commonly used livestock feed in the United
States, so Feeder Cattle prices are negatively correlated to corn
prices ( when corn prices are rising, feeder cattle prices are
declining and vice-a-versa ). Also, demand for beef or Live Cattle
prices has a great deal of effect on the price of Feeder Cattle.
The cattle industry, especially the feedlots, is composed of small
independent operators. As a result, cattle prices and feeder cattle
demand is subject to radical movements.
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