All eyes are on the feeder cattle markets. Western Video Market’s Silver Legacy sale in Reno, NV, and Superior Livestock Auction’s Week in the Rockies sale in Cheyenne, WY, took place last week. These sales usually set the pace for the rest of the year, and I’d say eight out of 10 times, the markets get stronger going into the fall season.
Cattle feeders are starting to get a little desperate for feeder cattle, and they are paying a boatload for yearling feeders, especially if they sell with natural, non-hormone treated attributes and healthy and vaccinated attributes. The second half of the year is showing us higher prices as the nation’s cow herd continues to decline.
Where this weather decline stops is anybody’s guess—we are the eternal optimists, and we expect rain next week and always have. Currently, moderate to severe drought consumes half of the country, while another quarter is abnormally dry, and the other quarter is normal—and normal is mostly along the northern tier of the country and the Northeast.
The fall calf markets look strong according to the feeder cattle futures: $180-plus is the established market for feeders, and the current cash markets are selling in line with futures. Those detailed yearlings are selling for $10-20 more than the CME Feeder Cattle Index, which is $170.34. I recorded a set of black steers weighing 950 pounds with a standard vaccination program selling for $182.50 for nearby delivery.
Fall delivery light calves have traded as high as $256, which is for detailed calves with all of the attributes and for November/December delivery. There were plenty of 500 lb. calves selling for over $2, and 550 lb. calves were even bringing a bit more. If you have the inventory to sell, cattle are worth a lot of money.
Fed cattle markets have remained relatively steady. There has been a huge disparity between price structures in Southern Plains feedlots and Northern Plains feedlots. August futures are trading around $137, and feeders in the South are selling at par with futures, while the guys in the North are seeing $8 premiums, trading at $145 live. Grading is clearly playing a role in the price disparity, and perhaps alternative marketing agreements are playing a role.
Boxed beef values are steady. Choice was trading at $268, and Select was trading at a $26.79 discount to Choice at $241. The last beef grading report showed that roughly 80 percent of beef production is grading Choice or Prime—this is about 5 percent lower than the norm. Quality beef has kept consumers interested in continuing to buy beef. Packer margins have shrunk dramatically.
There was an interesting piece in the Cattle Report by the Ag Center attempting to show us what the future of beef and cattle prices might look like: “Beef pricing also will depend on feed costs and always looming in the background will be the size and price of this year’s corn crop. This will help determine not only the current cost to produce beef but also beef’s relative position in the marketplace of all meats. Probably equally important will be the ability of our beef industry to continue to build our export markets.
“To those operating in the live sector, market leverage will become important to price. Leverage determines how the gross margin in the beef business is divided among the vertical partners in the beef production chain. For the past several years, that margin has been captured by the processors and retailers, leaving nothing but the scraps for the live animal producers. As the processors struggle for numbers of cattle amid a declining feedlot population, they will lose their ability to control the price. Retailers also will be plagued with budget-stressed consumers who are looking for value in the store.
“There remain enough unknowns in the future of beef prices to assure no quant genius will simply enter all the factors into a formula and output the value for the future. No one can tell us the severity of the recession, or the duration, or the outcome of the fall elections, or even the expectations for the 2024 presidential bid. As one of the legendary hedge fund masters told us recently, the next few years will not be about making money but conserving it.”
Lower cattle numbers and slightly lower feed costs may help the fed cattle side of the industry. However, lower cow numbers and lower calf production will keep the cost of feeder cattle high. As always, it will be a challenge to keep the cow-calf segment operational without grass. So here we go again—pray for rain. — PETE CROW
