It looks like market leverage has returned in cattlemen’s favor. Packers have been aggressive cash buyers on the negotiated trade market; over and over, they have purchased more than 100,000 head per week over the past three weeks. Cattle feeders have realized it’s time to dig in and take the market higher or take some margin back from the packers, who have enjoyed a long run of extreme profits.
We have seen “robust” cash trade over the past few weeks as feeders worked through the backlog of cattle the COVID crisis created. Cattle feeders can now have more flexibility managing their inventory of finished cattle. Reduced cattle numbers will now support higher prices, and we can see what robust cash trade is going forward. I realize there are cattle you can negotiate on, and there are those you can’t, but you knew that when you bought them.
For instance, the cattle on the West Coast are grading 85 percent Choice and Prime, while feeders in the Southern Plains are producing only 70 percent. It’s amazing how dairy steers will grade better than southern beef steers and heifers. It will be interesting how the beef-on-dairy programs with sexed semen will work out over the coming years. I was told by a JBS person they aren’t too fond of the beef/dairy cross cattle.
The fed cattle market has gained a lot of ground rapidly. On Oct. 24, fed steers averaged $124.32, and last week they averaged $140.08. Feeder cattle have also gained a lot, especially true yearlings, which are now hard to find. But that’s a $16 dollar advance in the fed market in five weeks.
There has been a lot of cattle market legislation proposed over the past year, and it looks as if some may pass. H.R. 5290, which would extend authorization for livestock mandatory reporting (LMR), passed in the House last week on a vote of 418-9. The House also passed the Cattle Contract Library Act of 2021 with a 411-13 vote.
Both of these elements are great and will give producers more information on how formula contracts work and other types of contracts. Go look at the hog contracts already posted—they will make your head spin. And we simply can’t place LMR under an annual funding mechanism; it needs to be long term.
Now I wonder if some of these other legislative proposals will die down like Sen. Chuck Grassley’s (R-IA) 50/14 plan to have each packer buy 50 percent of their plant needs on the negotiated cash market for delivery within 14 days. I understand that a hearing is set in January to examine his proposed legislation.
It’s looking like we’re in a similar scenario as we were in 2013 during the last drought. Feeder cattle are trading between $150-170 or better. Corn prices are in the high $5 range—we have a very similar market situation developing as we did back then.
The interesting little twist is that commercial bred females are selling very well. The Montana fall run of bred stock was excellent. Vermilion Ranch sold 1,718 commercial bred Angus heifers for an average of $2,004, Stevenson’s Diamond Dot sold 508 commercial bred heifers for $1,871 and Sitz Angus sold 362 commercial bred heifers for $4,453—this is remarkable. The West has been under drought conditions for quite a while, and our native ranges have been destocked. It looks like most of these cattle are moving south and east.
The beef cattle industry stepped up cow slaughter by 10 percent this past year, dairy cow slaughter is up 2 percent and fed heifer slaughter was also substantially larger. Next year should be a much different picture. Beef production is expected to be down 2.5 percent in 2022. It seems to me that the difference between the 2014 beef cycle and the one we’re starting is that consumer beef demand remains outstanding, and exports have been on fire thanks to China, but we all know that China can change in a heartbeat.
The Livestock Marketing Information Center reported that average cow costs were $853 in 2021, and they expect a 6 percent rise to $902. The cost of feed and other rising costs is to blame. High-priced feed usually creates high-priced cattle; it didn’t seem to work last year, but perhaps it will work better going forward. Meanwhile, let’s continue to pray for rain and snow. The drought map is getting bigger. — PETE CROW
