Auction market trade was also very good, but numbers are very low. There were few strings of steers and heifers, and cull cow numbers were also very low. Lots of auction markets are looking for reasons not to hold sales right now.
The cash fed cattle trade was again slow to develop. There was some mid-week trade in the southern Plains at $185. Ready fed cattle supplies are starting to dwindle going into summer and cattle feeders don’t seem too anxious to sell unless they can move the market higher. We saw some cattle at the Lanesboro, MN, fed cattle auction Wednesday bring $196.
With what these cattle feeders are paying for replacement feeders, this fed market is going need to see $200-plus fed cattle going into fall. The Ag Center’s Cattle Report made a comment about the $200 market: “Last year the CME board came within ticks of reaching $200 in futures trading. There is nothing magical about the $2 threshold—after all, it is just one cent above $199. There is something psychologically that occurs in our minds when prices reach certain benchmarks. It remains to be seen whether we will cross the $2 threshold, or not, and many factors will feed into the determination.
“The least important and totally meaningless reason for prices to reach $2 is the need of cattle operators to achieve that level to profit on cattle on feed. Prices have never responded to the profitability needs of the participants as any observer can verify. Prices will respond to economic factors at work in the marketplace. Markets can punish the neediest participants and often do.
“More relevant is ‘by the numbers.’ $2 by the numbers certainly seems achievable. Cow slaughter continues to decline. Feedyard placements are on track for reductions as we move forward, and total domestic beef production is expected to decline over the next couple of years despite rising carcass weights. Processors will be competing for smaller pools of fed cattle and competition should force prices higher.
“Feeding into the supply side will be imports and exports of beef. Imports will be increasing, and exports are likely to decrease. The value of our dollar will be an important factor determining the flows in and out of the U.S. markets, but there is likely to be some net gain of non-domestic supplies entering our market.
“Demand is the elephant in the room. Forecasts for the economy will rely somewhat on the outcome of the presidential election. Employment levels have been high, and those levels will need to hold for household budgets to include high priced beef in the grocery bag. Interest rates and inflation will move forward hand in hand to determine the burden they place on consumer’s preferences at the meat counter.
“Rebuilding will happen faster than many forecasts predict, but the interim remains a testing ground for many unknowns. Testing the elasticity of the demand curve for beef is always complex and, knowing the various econometric models are all likely to be wrong, is no reason to halt the analysis.”
The Choice beef cutout was able to reach an expected level of $318, perhaps a couple weeks later than the seasonal norm. A few market analysts I follow had packers making money. One showed packers earning 35 bucks a head and another had them making $166 per head, which perplexed me. I’m sure that packer costs vary from plant to plant, but this is a wide differential.
Cattle supplies should start to get smaller going into summer and carcass weights should start to come down. It’s been hot and late-term fed cattle don’t do well in triple-digit heat. After the Fourth of July we start the dog days of summer, and the market typically flounders until mid-August when Memorial Day demand picks up. Even with cheap corn, cattle feeders will need to see $200 or higher on fed cattle. Just how high can this market go? I think the ceiling is in sight. — PETE CROW
