I’m sure everyone is focused on the feeder cattle markets. For the last few months, feeder cattle have been in a near free fall. In April August feeders were trading at $160, and on June 26 they scored a new low at $131. Then, all of a sudden, last Wednesday, the feeder contracts all jumped the limit or near limit of $4.50. What the heck is going on?
The only thing that is not quite normal going into the summer market is feed, how much corn got planted, and what yields will be. The speculation game is on in the grain markets. Expensive feed generally provides for expensive cattle, but this is not happening now. It seems that cattle feeders have had about enough and are digging their heels in and trying to hold the market this week. It looks like they will be successful holding cattle above $108, which is where the summer low was expected to be.
Cattle feeders are current, there is no backlog, and packers are running at near-full capacity. Slaughter levels have been around 660,000 head a week and consumer demand is great. The Choice beef cutout is stable in the $220 zone, retailers are doing well, and packers are doing well. The problem is that we need the packers more than they need us—cattle producers—at this point in time.
Things will change, as they always do. If we can get some of these trade issues fixed, and I mean soon, the market will have some breathing room. Beef exports are down about 4 percent on the year and tariffs into Japan are hurting us. The USMCA trade deal has been ratified in Mexico and we hear Canada is eager to go forward. Canadian Prime Minister Justin Trudeau said he will call for a special session to get the deal done. Our own government appears to be the one dragging their feet. The Dems are concerned about labor and environmental issues. The administration hasn’t drafted a bill yet, which tells me that the House doesn’t have a handle on the vote count. Industry is begging the government to get ’er done and move on. No more politics.
Let’s hope that last week’s futures rally was more than a dead cat bounce and that futures traders realized that feeder cattle were getting too cheap and it’s time to go long in the market. Yes, we do have more cattle than we did a year ago, but demand has absorbed the additional volume well. We have a country that is filled with beef eaters; it’s that simple. Let’s hope we’ve seen the summer low.
The big video sales are just around the corner and typically provide a bellwether moment on the markets for fall-delivered calves and yearlings. The early auctions generally produce some of the best prices on feeder cattle most years.
If you’re selling calves or yearlings, it will pay to invest in your marketing efforts and become part of a program. This is a new term in the cattle business—“Program Cattle”—cattle that are validated by a third party to be special, whether they’re non-hormone-treated cattle (NHTC) or in the GAP program as natural and raised in a humane way. Are they yellow tag, Red Angus-sired cattle or Angus Link cattle? Are they organic, weaned, or are they straight off the cow? The list is long. Some of these attributes should add some value to your calves. Buyers are getting more specific, and picky about what they buy. I feel we will have a summer market that will pay more for program cattle. How much is a hard question to answer because those markets respond to supply and demand too. If there are more NHTC cattle than those contracts need, the price will go down.
It’s also going to be an interesting summer because most regions have been blessed with moisture. Grazing conditions are the best they’ve been in a while. Calves and yearlings will be heavier, which can change your market strategy. It’s all about the cost of adding weight. Carcass weights last week were 14 pounds below the five-year average and seven pounds lower than a year ago. It’s unlikely that feeders will want to put too much extra weight on current cattle.
I do think we may have touched the summer low on feeder cattle; they are cheap right now. Cattle feeders will need cattle. They just need to get a handle on their feed costs going forward. This corn crop is in the driver’s seat and it will be a volatile summer for corn markets and each new corn report and survey will move the market. It’s time to get a couple of “what if” scenarios in place so you can respond to changing market conditions. — PETE CROW
