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Friday, April 11, 2014

Spring fever in the markets

by Pete Crow - Publisher

Cattle markets continue to move higher, and I know that you all are wondering just how high it can go. Right now there is great demand for feeder cattle of all grades as short supplies have cattle feeders scrambling to replace inventories. Last week the feeder cattle futures were trading at $178 on the April contract and the September contract was at $182. I would expect strong consistent demand for feeder cattle all the way through next fall, barring any unforeseen issues that may arise.

 

Cattle feeders have enjoyed 10-12 weeks of live cattle trading at $150 and higher and have enjoyed healthy returns on the cattle they placed last fall. Feed prices have stabilized, but feeders are insanely competitive for those replacement cattle. We’ve had reports of 700 lb. steers trading in the $200 range.

Packers, on the other hand, have had a long storm to endure this past week; they were losing $120 per head, according to Hedgers Edge. The boxed beef cutout values have been trending downward and the Choice cutout was at $225 last week and is expected to drift lower. Many market watchers are expecting the live cattle market to break to the down side soon, if not now. I would expect packers to cut back on production to restore their margins.

I think it’s safe to say we’ve seen the market high for the year and will begin to see the seasonal decline start. If we have a typical spring price break of 15 percent, live cattle prices could drift down to the low $130 range. This type of price movement would put cattle feeder break-evens under pressure and affect the feeder cattle market. Current feeding margins averaged $223.51 per head for the week ending April 5.

The big wild card would be consumer demand for beef and grilling season is just around the corner. Demand has been relatively good through the winter months and should stay that way, but there are more cattle due in the next few months. Andy Gottschalk at Hedgers Edge said, “The greatest risk to the cattle complex is external to the cattle market. The cattle supply from increased placements in recent months is manageable, provided orderly marketings are maintained. Fed cattle carcass weights will reveal the ‘currentness’ of the cattle supply. Fed cattle futures violated their respective uptrends last week with ‘funny money’ heavily committed to the long side. Additional selling or price consolidation may be necessary before a price recovery can develop.”

Concerns are starting to surface about getting the next corn crop in the ground. Much of the Corn Belt was subject to a bitter cold winter and ground temperatures are not giving farmers the green light to start their planting efforts. USDA has forecast that farmers will plant 4 million fewer acres to corn this year. USDA also estimates the corn carryover will be 1.6 billion bushels. Spikes in the corn market are not a concern. Jim Robb, at the livestock Market Information Center said that he expects that feeder cattle prices will start to follow corn prices more than we have seen in the past few years. “We’re kind of back to normal trading patterns.”

But the effects of a declining cow herd will continue to keep feeder cattle trading at high levels. Cattle feeders should continue to chase down feeder cattle to keep their inventories up. It makes one wonder is this is one of those years where we could run out of feeder cattle.

Gottschalk says, “The supply of feeders and calves remains very positive long-term. The increase in placements during the first quarter has further reduced the available supplies outside of feedyards by more than 1 million head. The sharp contraction in available supplies will limit selling pressure of feeders, stockers and calves and will limit feedyard placements in the coming months. This should limit selling pressure on deferred fed cattle futures, as well.”

Slaughter cow and bull prices are also reaching new highs with good fleshy cows trading at over a $1 a pound and the old bulls reaching $1.15 and higher at many auction markets. Manufacturing and grinding beef markets have expanded most of all the beef primals. Lean 90s are trading at $253.02 and the 50 percent trim is trading at $111.71 cwt. Last year, at this time they were trading at $218 and $92.34, respectively.

The cattle markets are in good shape and should encourage producers to expand their cow herds if possible. Drought conditions are still a concern in many areas and everyone is praying for spring rains. — PETE CROW

 
 


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