We’ve been feeling it for a month or so, but it’s becoming clear that much of the West is in a drought situation. Spring rains have not developed, and it hasn’t been hot enough to create monsoon rains, yet.
For the most part, irrigation water is good, and we should be able to make more hay this summer. Weather is a hard thing to follow, but now we have weather radar apps on our phones to tell us exactly where the rough weather is, or if hail is coming. Currently the National Oceanic and Atmospheric Administration says 36 of the 50 states are experiencing some degree of drought severity.
Weather and drought always affect the market. Remember 2015 when there were so few cows that we had $3 calves? Losing 10 percent of the nation’s production had a dramatic effect on the market. We recently saw a similar situation with beef and COVID-19 where packing plants lost 23 percent of their production capacity and we saw the cutout run up to $475.
I am always surprised what moves markets. Drought generally thins out the cow inventory. But the irony of the market is we have too many fed cattle now and fed cattle prices are down. Then the slaughter cow and bull markets are picking up with $80/cwt fleshy cows and heavy bulls bringing $1 per pound or more. Seems like a good time to sort the bull pen and cull the marginal ones at a $1 a pound.
I was looking at the various beef markets and noticed the Select cutout was at $202 and the same day a couple weeks ago the cow beef cutout was $205. When does a cow beef market trade higher than the fed beef market? When there is overwhelming demand for ground beef. Folks may not be buying tenderloins and ribeyes right now, but they can’t seem to get enough ground beef. Ground beef is a tremendously popular product and roughly 55 percent of all beef consumed in the U.S. is ground beef.
Every five years USDA is required to review national dietary guidelines. It’s that time again and the beef industry must develop the research supporting lean beef in a healthy diet. It seems that the beef industry must fight a committee of nutritionists and doctors every five years to keep beef in the spotlight and in demand. It’s amazing that the liberal foodies always attempt to knock beef off the list.
It’s important to be on that list because it affects our market. Just think of how much beef the government buys each year for school lunch programs, the military and a bevy of food programs. I would like to see what the total volume of beef purchases are from federal and state governments. So, when it comes time to comment on the subject, you all should get your word in.
It looks like we’re going to have a long, hot, dry summer. We have a backlog of nearly a million fed cattle to slaughter, which, as you all know, is pushing prices down. Doesn’t seem like there is much we can do about it. It’s the packer’s responsibility to process and distribute the meat from those cattle. Some say weekly slaughter levels need to reach 700,000 head a week and maybe by November we’ll be through it.
You need to remember that feedlot placements have been down the last two months and then there will be daylight ahead when that hole of reduced fed cattle comes to the market. There may be a brief opportunity.
According to the feeder cattle futures market, feeder cattle prices will get stronger through fall and $135 seems to be the average number. It is a standard seasonal trend for feeder cattle markets to get strong as summer drones on. The big question is how low will fed cattle markets go? We traded last week in the high $90s and some market analysts are thinking fed cattle will go to the low $90s sometime in August. There are plenty of feeder cattle in the country for cattle feeders to pick over and it would be hard to assume feeder cattle prices will stay where they are. Right now, I would say your best defense is to get your cattle in a program. Program cattle are adding $20-25 per cwt to calves and yearlings consistently on the video auctions. — PETE CROW