It happened again; the first two weeks of the new year always deliver a good market. Feeder cattle sales were huge as cattle feeders loaded up on long-weaned calves and what yearlings might be left. Oklahoma City sold 15,000 head—nearly every auction market had big numbers.
Fed cattle markets have been sluggish at best; the early week’s trade was around $137 live and $218 dressed, but not many cattle were trading. Packers have been hit by the new COVID-19 variant Omicron, and their labor problems continue to put a drag on beef production.
With low supplies of beef come larger prices. The beef cutout has been going straight up, printing $293 for Choice product. Slaughter levels have been around 115,000 head per day; it’s looking like employees are starting to show back up to work. Packer margins have grown again.
I find it remarkable that consumer demand has remained strong after the holiday season. If we could produce more, we would sell more product, and overseas sales of beef are solid, with China becoming a big buyer of U.S. beef.
The annual cattle inventory will be released Jan. 31, and the Livestock Market Information Center (LMIC) is expecting to see the calf supply down a full 2 percent and total cattle inventory down 1.2 percent at 92.4 million head. Beef replacement heifers are expected to be down 1.5 percent, while dairy replacements are expected up 1 percent.
It will be a long winter trying to carry replacement heifers over until breeding season. Hay prices have put the brakes on and are forcing cattlemen to consider fewer replacement heifers. The bred stock markets have been good, but all the bred females selling in the Intermountain West are leaving the area. There is a deep concern about how much winter moisture we will receive.
The LMIC reported, “Average returns to cattle feeding in the Southern Plains, as calculated by LMIC, jumped to $200 per steer in December, capping off the year with two months well over $100 per steer returns. This boosted the 2021 average for the year solidly in positive territory, about $40 per head for the year. Positive returns would not have been possible without the astounding rally in the fed cattle market.
“Kansas Choice steers averaged over $130.44/cwt, propelling returns to over $100 per head in both months. Feed costs remained rather high all year, which created a balancing act between a hot feeder cattle market and cost of gain.”
Fed cattle futures started trending higher last week, pushing February to $138.55, which is a good signal to take fed cattle prices higher. Nearly all of the deferred contracts were a dollar higher. Let’s hope that this makes for a bullish market.
We saw the last few weeks of 2021 bring a high volume of cash fed trade and substantial price increases, to about $140. Many folks were thinking that the volume of cash trade is what pushed prices higher. I’d say it was excellent packer and consumer demand. Now we find ourselves in the winter months when beef demand is at its lowest point of the year. Slaughter levels typically slow down during the winter months.
That’s the cycle; when we get into April, fed prices will move higher because grilling season will be starting, and the best beef demand months will be upon us. April live cattle futures are currently $143.35. Contraseasonal situations can and do happen, and the market will break away from its usual, predictable cycle.
For now, enjoy the positive market we are in. Cattle inventories will be lower, and beef demand seems resilient. This is part of the price discovery process.
Stephen Koontz, ag economist at Colorado State University, said in his portion of the price discovery and industry issues workshop proceedings from last June, “Price discovery is about prices adjusting quickly to new market conditions—and that may be higher prices or lower prices. Some of the highest cattle market prices in history have been when the negotiated cash trade was the smallest.
“This is because of the supply/demand imbalance and not alternative marketing agreements use. Likewise, low cattle prices are due to the supply/demand balance or imbalance and not due to the path by which cattle are marketed. Mandating levels of negotiated cash trade would not have changed the supply/demand imbalance.”
Congress will be back in session soon, and legislators will once again be promoting their cattle industry bills. However, it is an election year, so be careful what you ask for. Meanwhile, keep praying for moisture. — PETE CROW
