We’re halfway through 2021 and it’s been a slow year for cattle prices and an exciting year for beef prices. Fed cattle markets have been relatively flat but are reaching new highs the past few weeks. Cash prices as high as $126.50 were paid last week and some folks are calling them charity payments from packers, which is fine by me. Cattle feeders are going to need that capital to buy more feeder cattle and they will be paying more for them this summer.
The big summer video sales are getting underway and so far, fall calf contracts have been excellent, especially on program cattle. Feeder cattle futures markets appear confident of a good market as well, with most fall contracts trading in the $160 zone.
Why are feeder cattle going higher in the wake of high feed prices? Simple—there are fewer of them. The folks at HedgersEdge.com say there are 900,000 fewer feeder cattle outside feedyards and we’re past the high point in the cattle cycle.
Drought is also playing a role; roughly 38 percent of the nation’s cattle inventory is in some degree of drought, with the hardest hit areas in the West and Southwest. Western North Dakota is in extreme drought and cattle liquidations are starting to occur.
Beef cow slaughter is running ahead of last year by 125,000 head and I would expect that to increase as summer drones on. It’s time to think about your calf marketing plans, especially now that calf prices are expected to be higher. I’ve seen analysts forecast $180 for 550-lb. calves and $160 yearlings. Which seems crazy since cattle feeders have been taking a beating the last 18 months.
As of the week ending June 21, the beef industry has processed around 850,000 more cattle according to USDA’s meat production report, and we have produced 771 million more pounds of beef, year to date. Heavy carcass weights have played a role in this additional production. The beef quality report has shown a decline in Choice and Prime beef; 72.2 percent graded Choice and 9.4 percent Prime. The Choice-Select spread was $22.02/cwt as of Wednesday. The cutout has been dropping like a rock, with Choice down to $291.29—it was $323 on June 18. I would expect it to slow down around $235.
USDA released their June corn report last week and projects farmers have planted 92.7 million acres of corn, coming in closer to the low end of analyst expectations. The Dow Jones average pre-report estimate came in at 93.8 million acres. USDA, in its Prospective Plantings report in March, had projected 91.14 million corn acres, which was deemed as a low estimate at the time. The acreage released Wednesday is 1.88 million acres above 2020 when farmers planted 90.82 million acres.
The expected harvest for corn is forecast at 84.5 million acres, up 2 percent from a year ago. With a yield of 177 bushels-per-acre expected, that would peg production at 14.956 billion bushels.
You all have heard that expensive feed makes for expensive cattle. That has not happened quite yet but we’re going down that road now. Will feeders be reluctant to place more cattle or feed them less? I don’t think so. There is too much value to not feed them to Choice grade. The cattle industry has fine-tuned production methods that allow us to produce a quality and ample supply of beef. It has taken 30 years to get to this point of creating new demand for high quality beef.
Feed costs and drought are putting a lot of pressure on cattle folks. But I expect to see a robust market for cattle. Beef demand has been fantastic, and I think it’s the cattleman’s turn at the trough.
The folks at HedgersEdge said “Average feeder and calf price estimates for the year are also revised upwardly: feeder steers 750-800 lbs. to $154/cwt. Calves 500-550 lbs. to $180/cwt. A hazard to these price estimates would be another sharp advance in feed grain prices or a resurgence of COVID-19.”
We’re finally getting through large supplies of slaughter-ready cattle. There are not enough feeder cattle available to create another bulge in cattle supplies. I expect the packers’ party is just about over and we can see more normal trade, which is supply and demand at work. Pray for summer rain. — PETE CROW
