The big NCBA Cattle Industry Convention started last week in Phoenix, AZ, and perhaps the big discussions will be of course the markets, trade and regulation. If you’ve never been to one of these meetings, you’re missing out.
NCBA as few as 10 years ago would only gather 4,000-5,000 folks but now they are getting over 8,000 folks to show up. They have worked at creating programs for young cattle people and have done a remarkable job in that arena.
The cattle inventory report came out last week and showed that herd growth is slowing down and may be starting to back up the range of estimates for beef replacement heifers. It was 96 percent of the prior year’s replacement heifers, a total 6.1 million head. Total cattle numbers were up just 1 percent over a year ago. The total beef cow herd is now 31.723 million head.
There appears to be a lot of volatility in cattle markets at this point.
Conventional wisdom would dictate that we have more numbers, and with bigger supply, we should have lower prices. However, on the other hand, in 2017 we marketed 1.3 million more fed cattle and average prices were higher than the year earlier. There seems to be a real parity between the bulls and the bears in the cattle market.
Two weeks ago, the futures markets wanted to be bearish before any cash trade took place. Then suddenly, the market turned bullish running the February contract over $126 and resulted in cash trade between $126-127.
Then last week, on Monday, some Kansas trade took place at $126 while other feeders were asking $130. Trade was established Tuesday at $126 in the Southern Plains.
Usually early week cash trade tells us that packers need cattle. But conventional wisdom has led us to believe that January feds wouldn’t be anything exciting. Packers have contracts to fill and apparently need cattle that I’m sure they thought they would buy much cheaper. The futures markets look solid going into April and then show a $10 break to the down side to a lower trading range.
The latest Cattle on Feed report said that there were 8.3 percent more cattle on feed. Placements were up just 0.08 percent. I am reminded that placements have been larger than the prior year for 10 straight months, which would seem normal. Marketings were down 1.4 percent, with one less marketing day, which usually accounts for 5 percent of the total, so the marketing rate was larger than a year ago.
The hard thing to dissect in these Cattle on Feed reports is: At what weights were cattle placed and when is their finish date? According to the boys at Hedgers Edge, the number of cattle on feed over 150 days Jan. 1 was 111 percent of a year ago; the number for February is 108 percent. Then that data suggests March will be 119 and 132 percent in April—just about when the futures market starts to fall apart and lose confidence that we can sell beef.
That would be the million-dollar question: How much beef can we sell after April? In April we start into our high demand period for beef sales. The economy is moving quickly and is strong, with lower unemployment and higher wages. Beef exports are projected by USDA to be 6 percent above 2017, which was 12 percent more than the year before. The boys at Hedgers Edge say that “This combination of demand factors should continue to improve throughout 2018. Accelerating wage growth will be the dominate positive demand factor this year. We maintain that it is labor’s turn at the pie.
Wages are at the early stages of a secular uptrend, domestically and worldwide. New technology only displaces some jobs, creating demand for jobs with new skills. The later factor is normally accompanied by higher wages. History is clear on this outcome.”
Yes, we have a lot more beef coming into the supply chain starting in August. Some analysts think there will be so many cattle that packers won’t be able to process them all. But trust me, if it’s profitable and there is enough demand, the packing industry will find a way to process them.
This industry processed 1.3 million more cattle in 2017 than the year before. The economy and global demand are great; folks have money to spend. We will absolutely test the limits of supply and demand. We always do. But I don’t think we should short the beef market. — PETE CROW
