Continuing on with the discussion of seasonal cycles in Mississippi Cattle Prices, this week we are looking at a primary source of revenue for many operations: feeder steers. Feeder steer prices in Mississippi are dependent upon prices around the country. Feedlot demand for steers and stocker demand for steers are both important drivers of the feeder markets. Also important is the timing of when most cattle are weaned and hit the market – usually during the fall months. If these factors cause prices to behave similarly throughout each year, a seasonal price index can be used to estimate the impact that the time of year can have on cattle prices.
To examine this, we can calculate a seasonal price index using data from 2011 to 2017. A price index represents how much monthly average prices differ from annual average prices. This is calculated by dividing each month’s average price by the average annual price. Next, the monthly average across the years of data is calculated to obtain an average price index. The price index calculated in this article has a base value of 1. This implies that if a given months price index is 1, the average price in that month is equal to the average annual price. If a monthly index value is 1.05, then the average price in that month is five percent higher than the annual average.
As shown in the graph, feeder steer prices over the past 7 years in Mississippi have followed a seasonal pattern of higher prices in the early Spring months and lower prices in the early Fall. The chart also shows the range of prices using an upper and lower standard deviation (+/- one S.D.). This range provides a confidence interval (68 percent) for expected prices. Price index values can be used to forecast expected prices by using the current month’s prices. For instance, the average price for 500-600 pound feeder steers in Mississippi during August was $138.88 per cwt. We can multiply this by the ratio of the December price index (1.031) and the August price index (0.987) to obtain a forecasted price of $145.07 per cwt for December 2017. If you would like more information on the price index values for various months, just email me and I will be happy to help.
This article was co-authored by Robert Thompson, Graduate Research Assistant in Agricultural Economics at MSU.