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Friday, October 25, 2013

Opportunity is ripe

by Pete Crow - Publisher

Fed cattle touched a new high last week with cattle selling at $132 and some at the $133 level, and it’s the first time we’ve seen midweek fed trade in a long while.

 

Dressed trade was at $208- 210 in the Corn Belt. This is sending a signal that packers don’t have enough cattle around them and current supplies are thinner than expected. Live steer carcass weights were also down 6 lbs. and heifers down 12 lbs. over the prior week.

This cattle market over the past few weeks has put some much needed black ink in cattle feeder’s hands. And what do they do? Go and drive the feeder cattle markets even higher. Feeder cattle markets took a little bit of a breather this last week, but who could blame it after a very long extended rally starting in May.

The October feeder cattle futures were trading $166.15 at mid-week with the deferred months a dollar higher, and the cash feeder cattle index is staying right with it at $165.08. This would be that one year in 10 when the calves and yearling markets were higher in the fall than early summer.

Simply put, the cattle just aren’t coming to town as fast and there are even fewer to market.

The Choice boxed beef market was trading at $200.68 last week with nearly a $16 Choice-Select spread, which isn’t unusual at this time of year. Slaughter rates have fallen from the large summer months and it looks as if the industry will be content processing around 620,000 head a week for a while.

The Cattle On Feed Report (due out Thursday, Oct. 31) is expected to show cattle placed into feed yards at 1 percent higher than a year ago and the on-feed number is anticipated to be down 7 percent from a year ago. Placement levels remain low and we wouldn’t expect to see any on-feed inventories creating any problems down the road.

Cow/calf producers continue to be in the driver’s seat with solid returns. The Livestock Market Information Center (LMIC) forecasts profits of $250 a head for cow/calf producers. And it appears that cost of production is going down for everyone in the cattle industry. Feed costs are significantly lower and fuel costs are down around 10 percent over a year ago.

The LMIC reported that looking ahead to 2014, there is a bit of good news on the cost front and cattle prices are forecast to continue to record year-over-year gains. Purchased feedstuffs costs should drop in 2014. In fact, cash costs of production per cow are projected to decline slightly next year. That cost drop plus high cattle prices set the stage for much improved per cow returns. In fact, those cash returns could substantially exceed 2004’s record high.

The demand for cattle is extraordinary and looks to remain that way for a while. Let’s just hope that the heavy drought conditions are behind us and we can start to rebuild the herd. But looking at the markets, it’s hard to see if anyone or any region is working at it in earnest. We don’t see any market signals that would indicate any large movement to retain and breed heifers. One might think if the spread between steer and heifer calves was six cents vs. the normal 10 cents, there is something going on. I don’t think looking at steer and heifer slaughter gives you any idea either.

What we looked at last Thursday was a special bred stock sale held by Superior Livestock Auction. They had over 4,000 bred heifers and cows on offer and they sold well. Good bred heifers that were detailed, ultrasounded and AI-bred sold for over $2,000 a head. Good quality second-calf cows that were bred right and will calve in a 60-day period brought the same kind of money. There were also some first-calf pairs that brought $2,500 a head.

The value of bred stock should stay strong for a while but you still have to make that commitment now to build your herd. It’s hard to see feeder heifers selling for $800 a head and not want to take advantage of that. It’s $800 today or breed them and sell them next fall for $2,000 a head, or calve them out and get a calf out of her for the next 10 years. We need some long term commitment in this business and that typically means getting some more young people committed to the cattle business and agriculture in general. — PETE CROW

 
 


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