Since then, calf prices staged a contra-seasonal rally. Increasing calf prices were good news for calf sellers and those that waited the longest to sell calves usually received the highest prices. The average North Dakota price for 550- to 600-pound steers at the spring seasonal peak in April was about $158 per hundredweight (cwt.) Prices then retreated seasonally to about $139 per cwt at the beginning of October.

Typically, prices would have continued to decline into November as calf marketing increased in the Northern Plains and across the U.S. However, prices increased each week and averaged about $160 per cwt the last few weeks in December.

Several factors fueled the rally. Corn futures prices, which had increased throughout the year to over $7.80 per bushel by September, abruptly declined about $2 by October to under $6. Although still at historic high levels, the corn price decline was supportive to calf prices especially when rumors of even higher corn prices had been surfacing. By mid to late December, corn futures were at their lowest level since mid-March. Spring and summer 2012 live cattle futures rallied from lows around $122 in September to nearly $130 by early November. A robust export market for beef, high byproduct values, and the expectation of lower beef supplies in 2012 helped fuel the rally.

Early 2012 feeder cattle futures prices also rallied from lows around $134 in September to the high 140's in October and up to $150 in mid-November. The combination of lower corn prices and higher feeder cattle futures prices stimulated the demand for calves to background in the Northern Plains where ample feed was available.

On the supply side, the USDA-NASS July 1 Cattle report estimated the 2011 calf crop to be down 1 percent from 2010, with July 1 feeder cattle supplies outside feedlots down 2.5 percent. The severe drought in the Southern Plains caused calves to be marketed early, which further reduced the supply on the market in October and November. Feedlot placements weighing less than 700 pounds compared to last year were up 42 percent in July, 22 percent in August, and 14 percent in September. Furthermore, lower feed costs, and in some cases higher calf prices in Canada created Canadian feedlot demand for Northern Plains calves. In early October feed barley prices in Alberta were averaging $3.50 per bu compared to over $6 corn in Omaha.

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So, a combination of several factors caused the contra-seasonal rally. Calf prices ended 2011 at record high levels, and usually increase seasonally into spring. Supplies will be historically tight, which will be supportive to prices. But prices will be impacted by the potential for spring and summer grazing conditions and corn prices. Drought conditions still plaque the Southeast and Southern Plains, although moisture conditions have improved somewhat in Eastern Oklahoma and Kansas. The latest U.S. Drought Monitor shows dry conditions creeping into the Western Corn Belt and Northern Plains, where grazing conditions were very good last year. So, both corn and calf prices are expected to be volatile in upcoming months.

On behalf of the authors of this column and staff of the Livestock Marketing Information Center, we wish you a very Happy and Prosperous New Year. end_mark

Tim Petry is a livestock economist for North Dakota State University. This originally appeared from the "In the Cattle Markets" newsletter.