Economists often say that market prices are determined by demand and supply. What they really mean is more correctly stated as “market prices are determined by expectations of demand and supply.” Under more stable and normal circumstances, this distinction is not particularly significant.
However, the current market situation creates significant disparities between the current supply and demand situation and expectations for coming supply and demand conditions. The result is a number of seeming paradoxes between different cash cattle and beef markets and between cash and futures markets.
Fed and feeder cattle markets have exhibited extreme volatility while balancing current market conditions and expectations for the future. As the Dow Jones fell from over 29,000 in the third week of February to less than 19,000 one month later, live cattle futures fell from about $112/cwt to $86/cwt (June contract) over the same period.
The markets reflect the ongoing concern about the weakening U.S. and global macroeconomic conditions resulting from COVID-19. June live cattle futures recovered to $97/cwt before dropping again late last week to $89/cwt. Live cattle futures have also reflected the risk that labor disruptions could disrupt packing plant operations.
Cash fed cattle prices declined from nearly $120/cwt in mid-February to a low around $106/cwt in mid-March. Cash fed prices declined on broader concerns reflected in the Live futures as well as the supply pressure of increased beef production. Year-to-date beef production is up 6.3 percent through mid-March.
In the last two weeks of March, cash fed cattle prices rebounded to about $119/cwt as packers increased beef production in response to the sharp demand increase for retail beef. Beef production is estimated to be up over 11 percent the last two weeks of March. Saturday cattle slaughter the last two weeks is estimated to be up 90 percent year over year and contribute to a 5.9 percent year-over-year increase in total cattle slaughter for the two-week period. Carcass weight continue well above year-ago levels.
Feeder cattle futures markets also reflected the macroeconomic uncertainty and declined from over $143/cwt in mid-February to a low of about $109/cwt by mid-March (May contract). Feeder futures continues to exhibit tremendous volatility trying to balance the longer-term macroeconomic concerns with short-term market conditions.
Cash feeder cattle prices followed futures with the Oklahoma combined auction prices for 500-550-lb. No. 1 steer prices, dropping from about $184/cwt in the third week of February to a low near $152/cwt one month later. Prices for 750-800-lb. No. 1 steers declined from about $139/cwt to $117/cwt over the same period.
Combined auction totals for Oklahoma declined 59 percent year over year in the last three weeks of March. Nationally, total feeder and stocker receipts are down 56 percent in the last three weeks of March. The squeeze on available feeder supplies pushed feeder prices sharply higher last week by 10 to 12 percent over the previous week. Ripple effects will likely impact feeder cattle markets in the coming weeks.
The different patterns of boxed beef, fed and feeder cattle prices in the past six weeks illustrates vividly the fact that these markets operate with very distinct dynamics. These dynamics have become very apparent as the distinction between the current market situation and expectations for future supply and demand conditions has widened. — Derrell S. Peel, Oklahoma State University Extension livestock marketing specialist
