Oklahoma is on fire—again. Extremely dry conditions have set the stage for wildfires in the southern Plains, which in many western areas are in full drought mode. Just since last Thursday over half a million acres have burnt, mostly native prairie in the western half of the state. The irony is that Oklahomans typically conduct controlled burns on a million acres a year.
These current fires have been devastating with around 80 homes destroyed, and cattle losses will be extensive. The current group of fires have eclipsed the magnitude of the fires experienced last fall. No one really knows how the fires started but many have speculated that powerlines and high winds are at fault. Rain is expected to help squelch the fires appetite, but long-term weather forecasts are pointing to a long, dry summer for the Southwest and much of the West.
Suddenly, a 250,000-acre fire on forest land or BLM land doesn’t look so big.
Hay is becoming a hot commodity. With a long, cold winter in the northern states, they have depleted their hay supplies. And the southern states haven’t been able to produce much forage. Hay prices are advancing quickly. Folks in the northern states are ready for winter to be over, while southwestern states never had much winter.
The prospects of a good hay crop this summer are fading fast. The northern states will have enough irrigation water to make it happen, but it appears areas below Interstate 80 are in a much different situation. We were at the annual Redd Ranch Bull Sale in Paradox, CO, last week and I have never seen the Delores River run as low as it is this time of year, and I have been making this trip for over 20 years.
Cattle producers in the Southwest are faced with a situation of early-weaned light calves and more than likely moving cows or thinning herds. Let’s all pray for spring rains so our southwestern friends get along. To the north, cattlemen have endured a long, cold winter with lots of snow. Hay supplies are just about gone, and calving has been tough; there will be winter calf loses up there.
Cattle markets have been behaving much better. Futures markets have put a full $10 on the April feeder cattle contract and about $7 on April live cattle. The futures markets are finally moving to the cash market for convergence. Cash trade on live cattle was established at $122 in the North and $120 in the South in the past two weeks and fed cattle markets have stabilized. Beef packers are walking into the best couple of months of the year for beef demand. Slaughter rates will start to climb and packers will be needing more cattle to keep the pipeline full. Packers are currently earning around $50 per head and retailers are enjoying great margins on beef sales.
The boys at Hedgers Edge are watching slaughter rates very closely, and said, “Given the expected seasonal gain in beef demand, any weekly production level above 636,000 head will exert renewed selling pressure on the beef cutout. We are projecting peak weekly slaughter during the month of July at 655,000 head. This will severely test packers’ slaughter and processing capacity.”
The April 1 Cattle on Feed report, which came out last Friday, was expected to show that there are 7.4 percent more cattle on feed versus a year ago. Placements will be down around 10 percent below last year and marketings were down about 4 percent with one less processing day, which typically accounts for 5 percent of marketings. So marketings were above a year ago, which we would expect.
Cattle placed in April are targeted for the August marketing spot, which cattle feeders want to avoid at this point. The expected buildup of market-ready cattle is anticipated to be very large as futures markets illustrate August live cattle were trading at $103 last week.
Beef demand remains excellent. The average retail beef price was at $5.60 per pound, which is quite positive. How that $5.60 is dispersed among the beef chain participants is always the big question mark. Whoever has the most leverage will carve out a greater share than others, and one’s fortune is always at the expense of another sector. Consumers remain willing to spend more of their hard-earned money on beef over other meat proteins. Strong demand will supply producers with the leverage they need to maintain strong markets. — PETE CROW
