Who would have figured that our politicians would shut down portions of the federal government over what appear to be small funding issues? Politics and common sense have finally collided, and politics won.
Mandatory Livestock Market Reporting was a casualty over the border wall. So, there will not be much to report on livestock markets this week. For the first couple days of the New Year, feeder cattle futures have lost $3. The market trend is pointed higher, according to most market analysts. Solid cash trade started at $123 with a stronger tone to the market. Some analysts have said $130 is possible with the aid of winter weather.
Last week packers processed 438,000 head and their margin dipped down to $86 per head. The boxed beef cutout is currently at $216 for Choice and $210 for Select beef. Packers are going to want to see the cutout levels rise now that margins have dropped, which typically means lower slaughter levels. Seasonally, slaughter levels decline from January through March. The good news is that during 2018, 741,000 more fed steers and heifers were slaughtered, a 2.3 percent increase over 2017.
USDA’s National Agricultural Statistics Service figures that fed heifer slaughter is 7.3 percent above a year ago and that beef cow slaughter is 10.7 percent higher than a year ago. The folks at the Livestock Marketing Information Center (LMIC) took a cursory look at those large slaughter figures. It may seem difficult to believe that the U.S. beef cow herd could show another year-over-year gain in the next inventory report, due the end of January.
LMIC reports, “The number of beef cows that have calved has grown over the last four years adding 2.6 million head since 2014. This incredible growth pattern has led to larger calf crops, and the economics has supported retaining a large number of heifers in recent years to continue adding to that beef cow number.
“Over the past 30 years, the proportion of federally-inspected slaughter of beef cows and heifers in the previous year leading up to Jan. 1 inventory has been about 40 percent. In recent years, as the cow herd has gained momentum, that proportion has fallen to 35 percent. This year the number of heifers and cows that have been slaughtered as a percent of the Jan. 1, 2018 [population] has risen back up to 38 percent. That suggests a return to more normal cull rates in 2018 and a slowdown in beef cow herd growth. In years of herd contraction, that proportion climbs over 40 percent and is closer to 42 or 43 percent. We estimate the 2019 beef cow count will be over 31.8 million head and will show modest growth of two- to four-tenths of a percent.”
After a banner year for beef sales it looks like inventories will be more manageable. Beef demand remains strong with a nice Christmas push to end a great year. Lighter placements over the past several months should provide a strong market going into the spring months and grilling season, typically our strongest demand season.
Trade remains a huge issue. We haven’t heard much in the past two weeks on the issue. With a new Congress being sworn in last Thursday, it seems that all predictions are off as to when we can close the USMCA trade deal, the NAFTA replacement. It appears that steel and aluminum industries are quite pleased to continue the tariffs while those of us in agriculture are ready to drop the tariffs and get back to meaningful business. It all depends on whose ox is getting gored as far as getting the administration’s attention.
It will be interesting to see how quickly this budget impasse is resolved with the new House of Representatives. The trickle down in this current shutdown has touched many in agriculture, simply because there is no money moving. We cannot get the results of the crossbreed EPDs for our North American Bull Guide, and other market data. It’s crazy that politics runs Washington, D.C. and the lack of common sense is so widespread.
The next two years will be either exciting or extremely frustrating. The new Democrat-led House of Representatives has the big stick and appears intent on whipping President Donald Trump with it. We won’t get much legislation done and I expect to see more continuing resolutions on budget issues. The Senate will be the spoiler the next few years on the Democrat agenda, and about all the Senate can do to keep the country in the right direction is to confirm federal judges. Happy New Year. — PETE CROW
