Cattle markets are slowly recovering; fed cattle are trading between $115-120 live and $180-190 dressed. Feed costs are also dropping, which will certainly cheapen up these cattle. We may even see some positive breakevens.
Packers have also, however, slowly been ramping up production levels. Tuesday they were up to an estimated slaughter of 102,000 head; Thursday they were at 110,000 head. If they could get up to 120,000 head per day and get Saturdays up to 60,000 head, we might chew through this backlog by fall. But there will be plenty of fed cattle for sale in July and August.
Ironically, the packers have had a floor price underneath fed cattle. They have held the line at $115-120 for the last two weeks. I just wonder how long they will support this market. The futures markets are saying they are worth $100—across the board.
We’re going to have to figure out a better way to find out what these fed cattle are worth. Price discovery is broken in the fed cattle markets, and it isn’t all about cash sales.
Beef values will continue to fall until the Choice cutout reaches a more manageable $250-275. It makes you wonder if we have driven customers away with these high beef prices. One interesting element in the beef market is that the demand for ground beef is paramount.
The price of chucks and rounds are what have been leading the cutout; both products were trading at over $4 a pound. The ribs and loins hardly moved at all. There’s more demand for hamburger than for rib steaks and tenderloins right now.
The price of 90 lean trim has been trading for over $300 since March. Fifty-fifty fat trim was over $300 for just a few days and within a week declined to $105/cwt. It’s been a crazy market to watch.
The backlog of cattle is growing every week. Some folks are saying 500,000; some say more. But it looks like the heaviest cattle are getting in front of the harvest line. Last week the industry produced a whopping 12.3 percent Prime beef, which would explain why 50’s prices have dropped so quickly.
Dressed carcass weights are the largest they have ever been. We quit using the yield grade system a couple years ago but there must be a lot of Y4s and Y5s in the slaughter mix.
So how long is it going to take to get this heavy backlog of cattle moved out? Some market analysts are saying sometime in 2021 will be the first signs of relief. I prefer to use HedgersEdge’s calculations of cattle on feed for more than 150 days. Their balance sheet is reliable.
They estimate that June inventory of front-end cattle is 133 percent greater than last year, and they calculate expected slaughter, and expected placements on a seasonal basis. According to their calculations, 83 percent of fed cattle will have been on feed for more than 150 days, reflecting harvestable front-end supplies.
Now you’ve got a bunch of feeder cattle to sell—what are your options? The market is on the uptick for feeder cattle. What I’m hearing most is a preference for two shots of live virus vaccine; buyers don’t want any health problems. If you can point out all positive attributes like NHTC, Gap, source and age verified—these things do make a difference.
But you have to sell them, not just take them through the video or local auction barn. Price discovery in the calf and feeder cattle markets is alive and well. And for you guys calving now or just over it, you’ve got some time and plenty of opportunities to get a fall delivery contract.
Cattle feeders will be needing feeder cattle soon, but they are going to run a sharp pencil on every purchase. They will have cheaper feed costs. Your downside is there are over a million head of feeder cattle that should be in a yard getting finished. I’m wondering how long packers will continue paying the floor price they established. It’s crazy we have a $100 futures market, and cash cattle at $120. We need price discovery fast. There is no hedge for fed cattle at this point.
We’re in volatile times. People are getting tired of this COVID-19 virus and starting to move around. The big video sales are preparing their events. This is one of those years where creative marketing will be needed, or different management of your cattle like backgrounding or even finishing them out. Remember: Feed is cheap; be sure to look at your options. — PETE CROW
