Live Cattle: What Makes Them Valuable [and What Drives Prices]

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The live cattle market is worth billions to the world economy. Cattle production is the biggest agricultural industry in the US,

Why Are Live Cattle Valuable?

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.

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.

What Drives the Price of Live Cattle?

Some of the specific factors that move live cattle prices include:

Beef Demand

Consumer incomes are one of the major drivers of beef demand and live cattle prices.

Beef is more expensive than pork or poultry, and demand for animal proteins often shows price elasticity. During previous recessions, beef prices have fallen in response to lower demand and during robust economic expansions, beef demand and prices have risen.

Butcher's Shop
Butcher’s Shop Selling Beef – Image via Pixabay

Cattle Feeding Spreads

Cattle traders often construct hedges to trade the relationship between (1) the price of live cattle and (2) the price of feeder cattle and grains.

One such spread is the cattle crush. In this spread 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.

As the price of feeder cattle moves higher (or lower), spread traders expect the price of live cattle to follow in the same direction. In other words, market participants generally expect there to be a high correlation between feeder cattle and live cattle prices.

Cattle on Feed Report

This monthly report by the United States Department of Agriculture (USDA) contains important data that can often dramatically move markets. The report lists three key pieces of data:

  1. Cattle and calves on feed – A measure of how many cattle will end up for processing in a few months.
  2. Placements – The number of cattle in feedlots that are being fed to produce a grade of ‘select’ or better by the USDA.
  3. Marketings – Cattle shipped out of feedlots to be slaughtered.

Feed Prices

As with feeder cattle, the price of corn and other feeds is inversely related to the price of live cattle.

However, the reason for this inverse relationship with live cattle is slightly different. With feeder cattle, corn prices influence the cost of finishing the product. As finishing costs (corn) decline, buyers are willing to pay more for the “intermediate” product.

With live cattle, a rise in corn prices may lead ranchers to bring cattle to market prematurely. This, in turn, creates an oversupply and lower prices.

Expert Opinions on Live Cattle Prices

Live Cattle Trading Experts

Experts have a cautiously optimistic view of live cattle prices. On the one hand, placements remain high, which suggests that more feeder cattle will be coming into production shortly. On the other hand, beef consumption remains strong:

…all year long we have seen beef demand defy expectations. The economy is in good shape, unemployment is low and the consumer appears willing and able to pay for beef.

– Daily Livestock Report

Top Uses of Live Cattle

Cattle producers primarily raise cattle as a food source. However, beef accounts for one of several products produced from live cattle:

Use of CattleDescription
Beef
Burger Icon
Hamburgers, steaks and roast beef are among the many products produced from beef.
Food By-Products
Ice Cream Icon
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
    Football Icon
    Beef hide is used to make a variety of items:
  • Leather
  • Felt
  • Some textiles
  • Base for ointments
  • Binder for plaster and asphalt
  • Base for insulation material
  • Brushes
  • Footballs
  • Non-Food Uses (Beef Fats and Fatty Acids)
    Soap Icon
    Some industrial oils, lubricants, soaps, lipsticks, face creams, hand creams, chemicals, pesticides and detergents derive from beef fat products.
    Bones, Horns and Hooves
    Piano Keys Icon
    Buttons, piano keys, glues and fertilizers are some of the many products made from bones, horns and hooves of cattle.

    World’s Top Live Cattle Producers

    RankFlagCountryBeef and Veal Produced per Year (1,000 Metric Tons)
    #1Flag of USAUnited States of America12,448
    #2Flag of BrazilBrazil9,700
    #3Flag of European UnionEuropean Union7,900
    #4Flag of ChinaChina7,110
    #5Flag of IndiaIndia4,300
    #6 Argentina FlagArgentina2,900
    #7Flag of MexicoMexico1,960
    #8Flag of pakistanPakistan1,800
    #9Flag of TurkeyTurkey1,600
    #10Russia1,300

    What is the Difference Between Feeder Cattle and Live Cattle?

    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.

    How Do Ranchers Produce Live Cattle?

    Production of live cattle begins with breeding cows (females) with bulls (males) either naturally or with artificial insemination (A.I.). Cows bred in the summer will produce calves in the spring.

    A natural breeding process generally requires one bull for each 20 to 25 cows. Many producers prefer A.I. because they can better control the genetics of the calves.

    Ranchers allocate a certain amount of acres of pasture or grazing land for each cow and its calf offspring. This is known as the stocking rate, and it varies from region to region based on weather conditions and maintenance procedures.

    In the United States –the top cattle-producing nation in the world – the stocking rate can be as low as five acres per cow-calf pair in high precipitation regions of the East to 150 acres in dry, arid regions of the West and Southwest.

    Cows Grazing
    Cows Grazing – Image via Pixabay

    A group of cows on a ranch is called a herd. Each cow generally gives birth to one calf, although some may occasionally produce twins. Not all cows conceive; weather, disease and nutrition can all affect conception rates.

    Each year ranchers typically cull about 15 to 25% of the cows in their herd and send them to slaughter. The most common reasons for culling a cow include:

    1. Failure to reproduce
    2. Advanced age
    3. Bad teeth
    4. Drought conditions
    5. High feed costs

    Once the calves are born, a certain number of females are held back to replace the cows that are culled. The remaining calves are raised for eventual slaughter. The timeline for raising cattle is as follows:

    1. First six months: Calves remain with the cow and receive their initial nutrition from nursing. Over time, ranchers supplement this nutrition with grass feeding and eventually with grain.
    2. Six to eight months of age: Calves typically weight 500 to 600 pounds at this stage. Ranchers wean the calf from the cow. Some very heavy calves go directly into feedlots, but most pass through stocker operations.
    3. Stocker operations: Calves get fed on summer grass, winter wheat or some other roughage until they reach the weight of 600 to 800 pounds, which is when they become feeder cattle. This phase generally lasts between six to 10 months.
    4. Feedlot: A rancher then has three options:
      1. Continue to raise the cattle on the rancher’s property until they reach the designated weight for slaughter
      2. Send the cattle to a commercial feedlot. A rancher would retain ownership of the cattle while the commercial feedlot feeds them.
      3. Sell the feeder cattle to another rancher or feedlot operation.

    Feeder cattle receive high-energy feed to promote weight gain. They are usually either steers (castrated males) or heifers (females that have not given birth). Cows (females that have given birth) and bulls (sexually intact males) generally are kept for production and not placed in feedlots.

    Once the cattle reach slaughter weight, they are sold as live cows either directly to a packer or through an auction. Packers slaughter the live cows and sell all the meat and by-products from the animals.

    Further Reading

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