Just when you think the cattle markets are high enough, they go even higher. I don’t think anyone predicted that cattle and beef prices would go higher than they were in April. The feeder cattle market is a solid 15 percent higher than it was a CROW month ago. Good spring rains have delayed many yearlings from coming to market and feedlot demand is outstanding.
Last week, Northern Video sold a set of all natural steers from the Greet Ranch in Ten Sleep, WY, for $236 cwt. Those cattle may break even in the $160s when they go to market. It seems like cattle feeders have thrown caution to the wind buying replacement feeder cattle. But they can currently hedge those cattle at $155 on the December futures. And I would have to say that the December live cattle contract can go higher, especially when you compare it to the current August contract which was $152 last Wednesday.
All of a sudden the December contract looks pretty cheap. Many market watchers are starting to think fed cattle will go above $160.
Cattle feeders have done well the past 10 months, perhaps earning back what they lost over the prior two years. Many market analysts were expecting some back pressure from consumers and high beef prices, but that simply hasn’t happened. Exports and domestic demand has surprised all the market analysts. I would give more credit to exports for adding value and I expect them to grow further. Beef demand increased 4.8 percent during the second quarter.
However, we will officially be in the dog days of summer after the 4th of July. July and August are typically the largest months for beef production during the year and the market usually makes an adjustment this time of year. The next big weekend for beef sales will be Labor Day.
But taking a historical perspective of the cattle markets won’t work going forward. Too much has changed in the cattle business, making it difficult to forecast markets. Corn prices have dropped dramatically, cattle supplies are extremely low and so are hog supplies.
The PEDv virus has devastated hog production. Some folks are having the best summer in years while others are still dealing with a persistent drought. It’s been a crazy spring.
The cattle numbers simply aren’t there and I doubt that the next national cattle inventory report at the end of the month will show much herd expansion, if any at all. The motivation to grow cow herds is there with record-setting calf and yearling prices, but drought is still holding some folks back. And cattle feeders are competing to own cattle, especially the high quality ones. The last cattle feeding margin report showed that feeders were earning $280 a head and packers were making $100 per head. We have one of those rare times when all three production segments are all earning a profit.
Now that the market is officially in no man’s land, it seems that everyone is wondering when the bubble will burst. We’ve never seen the markets rally this high, this fast, so surely the markets can’t maintain this momentum.
One item that could throw a wrench into this market is Country of Origin Labeling (COOL). Last week the World Trade Organization (WTO) made their decision about the trade implications over COOL and released a preliminary decision that favored Canada and Mexico’s complaint; they will make a formal announcement at the end of July.
If Congress doesn’t act soon to end this COOL fiasco, Canada and Mexico will be able to impose retaliatory market measures which means tariffs on beef products going to those two countries. Canada has already told us they will place tariffs on beef. Mexico hasn’t told us how they will retaliate yet, but they could just shut the border to U.S. beef. Both Canada and Mexico are two of our largest beef export destinations. This COOL thing could have very negative impacts on cattle markets.
It’s ironic that cattlemen are enjoying the best market in history, which has exceeded anyone’s imagination, but it may be threatened by a producer-proposed initiative forcing beef producers to label beef to tell where the cattle are born, raised and harvested, which now has the ability to damage this remarkable market. I will anxiously be awaiting the reply from R- CALF, U.S. Cattlemen’s Association and National Farmers Union, who are big proponents of COOL, after the WTO announces their decision and the markets start to react. Expect more drama in the cattle markets. — PETE CROW