Looks like cattle feeders are tired of this slow-moving market and digging their heels in for higher money. Mid-week, feeders were still holding for $120 as they watch the beef cutouts move higher, $2.47.12 last Wednesday. There were a handful of trades at the $118 level as of Thursday last week. Packers have been enjoying very good margins and it’s time to share the spoils and get feeders back into a profitable situation, which they haven’t seen for a while.
Beef demand has been robust, and Easter was expected to be a larger than normal beef-consuming day when hams usually get the spotlight. Pork prices have been much higher than normal, and consumers won’t see cheap hams in the market. Lean hogs were trading at the CME at $101, which is quite high for pork.
The annual planting intentions report of U.S. farmers was released last Wednesday showing farmers were going to plant 91.1 million acres of corn, which sent CME corn prices soaring, gaining 25 cents for the day. Dec 2021 corn is trading at $4.77. Futures markets will start competing for acres between corn and soybeans for extra plantings. The corn planting forecast was less than 1 percent larger than last year. North and South Dakota were expecting to see the most growth, adding some 2 million acres, which some will be new acres at the cost of native pasture. Soybean plantings are expected to be up 5 percent over last year at 87.6 million acres.
As a result, feeder cattle contracts were down sharply. We need to point out that August through October futures contracts were all above $160 before the $2-3 losses last Wednesday. Auction markets early in the week were seeing a stronger feeder market; up $2-4. And light steer calves were $7-10 higher. Sounds like grass fever.
The Livestock Marketing Information Center (LMIC) came out with their annual forecasts for the livestock industry, and cow-calf producers should expect slightly higher margins this year. There are a million fewer calves being born this year, which should create some competition for feeder cattle and calves. LMIC sees cow-calf returns averaging $65 per head going forward. They also expect to see cull cow prices rise a bit. The foremost thought on cow-calf operators’ and stocker operations’ minds is Drought.
March was a wet month for most of the West and, even though the snowstorms were inconvenient for calving, it was a welcome event. The national Drought Monitor shows much of the southwest Great Basin states in extreme drought. However, timely spring rains can make a world of difference in Western range country, which typically gets 10 inches a year.
Feed prices is the other issue facing the livestock industry. Feedlots have seen their costs go up 40 percent since last fall. We are going to see higher meat prices going forward. The average of all fresh beef prices last month were $6.23. Beef prices haven’t gone down much since 2014 when we experienced the last widespread drought. The peak price last June was $7.38 per pound. Just think how many consumer dollars are spent on beef these days.
Retailers are enjoying full margins on beef, which will motivate them to keep on featuring beef in their ads. Now that we’re looking at spring grilling season, expect to see lots of steak items featured. For instance, Kroger, the largest grocery retailer, featured bone-in Choice rib roast for $6.99 the week before Easter.
Consumer demand has never been better for beef and export demand is strong. I expect to see China become one of our largest customers, unless geo-politics messes it up, which is possible. China appears to have a problem with viruses. The African swine fever has decimated their pork production. They thought they had it beat back but a new variant has started infecting herds again. One would think that a virus that has been floating around for two years threatening their food supply would get more attention and they would produce a vaccine. The way they handled this and COVID-19 is perplexing to me.
Anyway, the market is going higher, consumer demand is fantastic, and the supply chain is functioning properly. Once we get some leverage back, we need to manage it, just like the packers do. Meanwhile, we must deal with higher feed costs and the ever-present threat of drought. So once again, pray for timely spring rains. — PETE CROW
