It looks like the fed cattle markets are trying to bottom out. Cash trade is at $105. Reports continue to show that current market-ready supplies of fed cattle are lower that they were a year ago for cattle on feed for more than 150 days. Slaughter weights are still below a year ago.
Frankly I’m surprised that cattle feeders haven’t been trying hold the line a little harder, especially when packers are making record profits.
Labor Day weekend moved a lot of beef as expected. However, the only real hiccup in beef movement was the weather. Massive hurricanes and the aftermath has destroyed Florida and south Texas. It would be hard to keep beef around when there is no electricity for refrigeration or fuel to crank up the barbecue.
Just think for a minute that those two hurricanes disrupted the lives of at least 25 million people. The economies in those areas have slowed dramatically. Then again, I’m sure things will get back on track and distributors will get beef moving in those markets.
Futures markets continue to offer no guidance. The October contract is stuck in a low trading range around $105, the premium basis is pretty much gone, and feeders are not as aggressive sellers as before. The deferred futures contracts now show a big premium going into January. Some analysts have suggested that cattle feeders may start to hold on to cattle and start making them bigger. But after recent lessons, I don’t think that will happen. Current close outs have feeders losing $20-50 per head now.
Feeder cattle markets have maintained good strength going into fall. The CME feeder cattle index has been gaining strength the past few weeks and was at $149.02 at press time. A week before, it was at $145.85.
Cattle feeders and yearling operators have been aggressive buyers of calves. In last week’s Cattle Country Video sale, 550 lbs. steer caves were trading between $170-175.
Recently Derrell Peel, extension economist from Oklahoma State University, was commenting that there is good moisture in the southern wheat country and farmers could sow their wheat 30 days early and it appears that they could have an additional 60 days of grazing. He also said that wheat prices are so low that many wheat pasture grazers may just opt to graze out the wheat and make more heavy yearling feeder cattle.
Andy Gottschalk at HedgersEdge is forecasting that the next Cattle on Feed report for September will show cattle on feed up 2.4 percent over last year and placements down 5.4 percent, which should help fourth quarter marketings. The marketing number for August was up 7.1 percent with the same number of marketing days.
It’s kind of remarkable that the industry can maintain the marketing rate with the much larger volume of cattle available and keep the retail price as high as it is. July’s average all fresh beef retail price was $5.83 (last official data). Last year it was $5.78, so consumers are spending more money on beef. This is especially remarkable when you consider that beef production is up 4.1 percent over a year ago. Beef demand is quite good.
Gottschalk also said that demand for feeder cattle has increased, as strong August live cattle marketings emptied some pens and encouraged feeders to replace them. The price protection offered by the deferred futures contracts is not enough to cover the breakeven levels, however. Plus, current feedlot closeout levels are at breakeven at best. During the fourth quarter, fed cattle breakevens will advance to the mid-to-upper teens, adding further concern to a projected slower marketing rate.
Jim Robb at the Livestock Marketing Information Center is forecasting that 2017 steer calf prices in the southern plains will average above 2016’s depressed quarterly average this fall. Does that mean calf prices on 2018 and 2019 will continue to post year-over-year increases? The answer is no. At least producers shouldn’t be basing their financial plans as such.
Both supply and demand dimensions will decide prices. The fundamentals of the cattle and beef supply for the next two years will be the size of the U.S. calf crops. The calf crop has increased each of the last three years and 2017 looks to be the largest since 2008. It is expected to grow larger the next two years. All else equal, that it is challenging environment to keep raising prices. But we’re doing a good job so far. — PETE CROW
