Vladimir Putin, Russia’s dictator leader, has certainly turned the world upside down. Most of the world is angry at the man for disrupting the status quo. We were in a world of relative peace, and suddenly we’re looking at a hostile invasion of a neighboring country that has been a democracy since the Soviet Union was destroyed in the 1990s.
Markets have gone nuts—all markets, especially commodities. Corn reached near $8, wheat $13 and soybeans $17. Do you suppose that feed efficiency in livestock will be more important than ever? Watching these bull sales, the past few weeks have been remarkable. Bulls, regardless of breed, are selling for more money than ever before. Remember when cattlemen would keep the best bull calves from their commercial calf crop for herd bulls? I’m sure it still happens, but to a lesser degree than back in the 1970s.
Buying bulls has become a precise business, and you better have your breeding goals laid out for several years. Most breed associations have started indexing economically relevant traits for bull buyers to help them stay away from single-trait selection. So, I would suggest using these indexes.
Russia and Ukraine are major players in corn and wheat, and we are getting very close to planting season, which lays a lot of questions before us. Both of these countries are major fertilizer producers, and as we all know, fertilizer prices are 200-300 percent higher than a year ago. And this was a good time to disrupt the global oil and gas markets. It seems pointless to quit buying Russian oil since it is only 3 percent of our domestic usage.
The green agenda is starting to get a little out of hand. The Biden administration needs to reassess their energy policies and get the hydrocarbon business back on its feet. Gasoline prices in some parts of California are over $7 a gallon, which is the worst place to buy fuel, and low-income households get hit the worst.
This is no time to panic or make emotional decisions, but you do have to wonder how we are going to get a crop in, or even if Ukraine can get a crop in the ground with bombs flying around. How is Putin going to get his tail out of this crack in world order? I don’t think it’s a secret that Russia and China would like to change that. Most of the free world will have Putin in their sights, and something drastic is going to happen.
Cattle futures markets have pushed the panic button; live cattle and feeder cattle futures have lost their way and are forgetting that the market supply/demand fundamentals are in good shape. Fed cattle trade was $138 last week, and the live cattle contract was $137.57, so there is a tiny positive basis. Some cattle traded at $140, down $2-3 from the prior week.
Packers have turned up the processing line and are processing 125,000 head per day. Beef production is strong as we head into the second quarter of the year, when beef demand is at its best. The boxed beef cutout has stabilized around the $250 mark; packer margins have fallen 42 percent over the past six weeks. Recent packer margins calculated by the Livestock Marketing Information Center are $351.90 per 1,000 pounds of carcass weight, including byproducts. Last year, packer margins averaged $452.80 per 1,000 lbs. of carcass weight.
How high can fuel prices rise? Speculators are calling for $200 for a barrel of oil. Currently, we are at $109.50 per barrel. We are seeing diesel prices over $5 a gallon—it’s going to be an expensive planting season this spring.
It’s going to be a tough year for meat producers and agriculture in general. Energy and fertilizer and crop chemicals will pose an expensive planting season. I doubt there will be any new ground planted. Then we must remain concerned about moisture. The Drought Monitor still has a grip on the West and spots in the Corn Belt. Grain prices will remain high, and feeding livestock will be expensive. So, when you’re buying bulls, pay attention to feed efficiency.
Putin’s war has disrupted just about everything. Pressured supply chains are worse and more expensive—inflation will be with us longer than many of us think. So, let’s pray for peace and more moisture. — PETE CROW
