It feels like we are at the doorstep of much stronger markets for cattle. The futures market has turned around and is much stronger this past week, and it seems the longs are back in the market—and we love the long players. Fed cattle trade was slow to develop last week. It appeared packers had a good supply of cattle around them and weren’t making much noise on the cash markets. At the fed cattle auctions, 1,500-pound steers were seen selling for $173-174 on the high side, but it looks like the average will be around $168 live, $265 dressed. With all the mud, packers have only bought dressed cattle. Outside markets appear to have calmed down since the prior week’s bank debacle.
Packers are processing far fewer cattle than last year and haven’t been able to move the Choice cutout higher. The market will start to ration supplies; ribs and loins are carrying the market at this point. Packers are struggling to maintain their margins of around $90 per head. March is over and April is typically when the market becomes stronger—we will see if that is the case.
The folks at HedgersEdge said in their last cattle outlook, “Front-end fed cattle supplies currently project to trend below prior years levels and below the previous five-year average next month. This trend of declining marketable supplies will accelerate as this industry proceeds through the summer of 2023.”
It’s been a long cold winter, and I know most ranchers are getting really tired of the cold weather and snow but know those snows bring spring grass. Several folks have told us that they think they will be about three weeks behind normal spring grazing. The Intermountain West has been blessed with good moisture; the only problem is that it’s cold.
With prospects of good grazing, the feeder cattle market is taking off. Spring marketing on the West Coast should be perhaps late, but good prices for yearlings and calves will be had. I spoke with Max Olvera at Turlock Livestock Auction Yard, and he said, “The moisture we’ve had has saved the cattle industry in California. The drought forced everyone to drop 20-30% of their cow herds. If the drought continued, we would be in trouble.” Calves are selling up in the $2.40 range and there aren’t as many yearlings as one would think. Those California yearlings should be worth a bunch in this market.
Futures markets are very favorable to fall yearlings. October feeder cattle futures had them priced at $2.23 and August was at $2.18—not bad for an 800-lb. yearling. I’m very optimistic about the future of the cattle industry going forward. If you’re inclined, a put option may be worth it. A $220 put would cost about $6.50/cwt.
Demand is about willingness and ability to buy beef. Over the years, we’ve talked about competing meats. Now we’re in a different competitive position. Folks are not buying pork, and chicken gets boring. One thing the COVID episode did was force people to learn how to cook beef. I can’t believe the prices for short ribs or skirt steak today, nearly $8-10 a pound if you can find it because many of those cuts are exported.
It appears that the recent bank fiasco is about done with. Bad banks are being bought up by the big banks. The government is backing up the depositors, even if they are uninsured up to the FDIC limit of $250,000. The outside markets are picking up steam, so game over. But in the back of my mind, it seems like we have some financial failure every 10-15 years. So, it’s about time for some kind of episode. This latest round seems like a warning sign.
The HedgersEdge guys said, “On a positive note, when considering the recent bank failure, the Fed is backstopping all losses to depositors. This may very well prove to be the first step towards nationalizing the banks—stay tuned. The opportunity to expand the government’s control over and influence in our lives never escapes today’s politicians.” Amen to that.
The market is going to be wide open, the cattle supply is just not there. Good, fleshy beef cows are selling for over $1/lb. and cull bulls for $1.20/lb. and higher. Open heifers are between $1,600-1,800 a head. Bull sales have been extraordinary. Everything looks green in the markets and finally on Western ranges, and May rain would be great. — PETE CROW
