It always seems that when cattle markets are setting new record-high prices something happens, regardless of fundamentals. Texas has been in the news a lot lately. Last month’s fire, highly pathogenic avian influenza (HPAI) showing up in dairy cows and now the avian flu was found in a dairy worker, the second-ever known case of a human contracting the flu in the U.S.
Futures market traders certainly didn’t like the news of the bird flu in dairy cows and traders fled from the market. No one seems to know if beef cattle are susceptible to the flu. The CME lost $4-7 on Monday, April Fool’s Day. The only thing we can justify as a reason for the crash is fear, even though vets and health agencies tell us there isn’t much to worry about. The milk from infected cows isn’t going into the food system and all other milk is pasteurized. The one reported human case is more like pinkeye.
Kirk Donsbach at StoneX Market Intelligence said in his weekly newsletter: “The beef market sold the news hard, although I believe the market got it wrong in this case and what we experienced was a sell first, ask questions later event. There is no exposure to the food chain and ‘mammals (cows) are dead end hosts, which means they’re unlikely to spread HPAI further.’ In my opinion, this is either a small enough event that the market should not be affected, or it is bullish. Outside of fear, I see no bearish factors to this news event.”
But the April live cattle contract fell to the $180 level, which was a gift to packers after the weighted average hit $188.10. Clearly, they were going to try and buy cattle cheaper. Packers were losing $75 per head before the market plummeted, as they saw the Choice beef cutout drift down to the low $300s. It’s about time for packers to start increasing slaughter as we move into the high-demand grilling season. There also weren’t many beef items advertised in grocery store flyers; pork and poultry are getting more attention from retailers. Makes you wonder if robust demand for beef is coming to an end.
Feeder cattle markets ignored the futures markets after a $7 slide on the April contract. Many auction markets were reporting stronger prices on all classes of cattle. There has been a big spike in the cull cow and bull market. The need for 90% lean trim for ground beef is huge; the 90s have moved to $340/cwt. Fleshy cull cows are trading for $150, and bulls were reported at $200.
The Ag Center’s Cattle Report said, “A major adjustment in the pricing of replacement cattle will hang in the balance as operators absorb the selloff in futures prices and competition heats up for replacement cattle from a shrinking pool of spring offerings. Short supplies seemed to be the driver for price until the recent future’s price reversal. The market in OKC told the story of the conflict between futures and cash. On a day when futures prices fell up to $7, cash prices in the auction were steadily higher.
“Market observers will begin to look for signs of a reduction in heifer placements on feed. This will signal the beginning of the herd rebuilding. Heifer retention also will reduce the calf pool available for grazing and growing. Conditions are now right for the rapid rebuilding of the nation’s cattle herd. The omission of a breakdown by sex in the monthly (Cattle on Feed) reports by USDA is an oversight in need of correction.”
The fundamental supply demand situation is healthy, and this little market blip will pass. It has not affected the feeder calf market at all but fed cattle buyers will work prices down as much as they can. Packers should need cattle going into summer grilling season. The beef cutout should start to show some strength. Watch for carcass weights—they should start coming down as well.
When the summer video sales start, this avian flu situation will be an interesting memory and we will see new highs made on summer yearlings and fall calves. This fed market should test the $200 level this summer. And let’s continue praying for spring rain. — PETE CROW
