Bull sale season is slowly coming to an end. It’s remarkable how many bulls were absorbed into a shrinking national cow herd, especially in the West. But on the other hand, salvage values of cull bulls are the best they have ever been. You’ve heard it a hundred times: Sell the old bulls and buy fresh new genetics, and improve your cow herd when the grass grows again.
Cattle markets were stable last week, trading between $138-140 live and $222 dressed. Cash markets were slightly stronger than the formula trade, which is rare. Cattle feeders will have a difficult time this summer when a wall of cattle is expected to develop around June.
The cost of gain with $7.50 corn is translating into $1.32 cost of gain, which has taken its toll on feeder cattle prices. April feeder cattle futures have dropped a full $10/cwt. Even the deferred markets are down the same $10 since the Russian/Ukrainian conflict began. Current feedlot breakevens and future placements show $50-75 dollar losses going forward.
The planting intentions report came out last week and showed that corn acres may be down about 4 percent—89.5 million acres—from last year, with soybeans picking up those acres at 91 million acres.
The CME Daily Livestock Report said, “From a livestock perspective, this report has a negative tone. Corn prices will remain elevated as planting gets underway in a case to bid more acres into the mix. The current estimate for plantings would create a tight corn balance sheet and cause season average prices to move higher and significantly so. World corn production was already expected to be strained through the Ukraine conflict, and the U.S. planting of this few acres compounds the short situation. Next year’s season average price will be over $6 but how much higher is still being determined. Immediately following the report, December corn futures jumped more than 30 cents, before settling out and closing at $6.83 per bushel.
“With trendline yields and conservative estimates on how much more corn in the U.S. will export because of Ukraine, carryout is easily pulled to 1 billion bushels or below, more than justifying a scenario closer to 25 percent jump in 1983-84 and could put the U.S. season average price closer to $7 per bushel. At those prices, margins for livestock producers will be significantly compressed.”
Hay acres are also expected to be down a quarter million acres. Texas, the largest hay producer, is expected to be down 11 percent. Further drought in the Southern Plains is the primary concern for the cow-calf sector. One thing is for sure: This may be the most expensive corn crop ever planted with fertilizer prices and diesel prices at all-time highs.
Moisture, rain and even late-season snows will be critical to the cattle business. The Drought Monitor shows that Corn Belt states are seeing spots of drought conditions. Our friends on the West Coast are perhaps in the worst of the drought. Irrigation and water diversions in the Klamath Basin have been halted, and much of the Central Valley will receive less water.
The Gavin Newsom administration in California unveiled a $2.6 billion plan to fallow rice paddocks to divert water in the Sacramento-San Joaquin River Delta for the salmon. Irrigation districts are asked to invest $660 million into the habitat plan.
Western Video Market held their sale last Thursday, and it appears cattle are coming off pastures earlier than normal and lighter. You could tell that trucking was going to be an issue in California with fuel prices as high as they are, and it was reflected in cattle prices.
If these folks don’t get water soon, it’s going to be tough sledding for all of agriculture in the state. My friends at HedgersEdge.com said, “At this present time, 62 percent of the cattle inventory is in areas experiencing some degree of drought. In regard to the grains and the same measurements: Corn has 33 percent, sorghum 90 percent, soybeans 23 percent, and winter wheat 70 percent in areas with varying degrees of drought (per the National Oceanic and Atmospheric Administration) and long-term weather forecasts don’t look great.” So, keep on praying for rain. — PETE CROW
