Cattle markets continued to move higher this last week, and the live cattle futures had enough guts to take the February live cattle contract over $200 for the first time ever. Seems like packers are throwing caution at the wind to obtain fed cattle. I had one report from a rancher that they sold some fed cattle for $221 at the Lanesboro Sales Commission in Minnesota.
Feeder cattle are also stronger with the January feeder cattle contract moving to $278. There were rumors that Mexico would open up for feeder cattle exports to the U.S. soon, but nothing official yet. But with feeder cattle moving to all-time highs and corn on a nice rally to near $5, fed cattle breakevens will be moving much higher, perhaps $220.
It’s amazing that after the inauguration of President Donald Trump, the markets have all been green and Americans are bullish on this administration. It’s easy to be bullish on Trump after the Biden administration’s folly of the last four years—an easy comparison for someone who pays attention.
However, politics will continue as they always have. There is such a dramatic divide in this country, and I think most folks are tired of operating with one hand tied behind their back. Trump and his team will break down the barriers that have held this economy from flourishing. The Green New Deal was holding the world back from economic growth; if you’re an ideological activist, you just lost a bunch of your platform. It’s the silent majority of Americans that are back in the driver’s seat. Perhaps, common sense is here to stay in government.
The Cattle on Feed report due Friday was expected to be uneventful. The average guess for cattle on feed will be below 100%. Marketings were expected to be 1.5% higher than last year with one extra day and placements were expected to be higher. We’ll see. The big government report will be the Jan. 31 Cattle inventory report, which is expected to show a dramatic decline in numbers. I’m sure we will all be watching the replacement heifer number with great anticipation.
The beef cutout is holding well after the holiday rib run, and the way this market appears to be setting up, we should have a fairly solid market going forward. Winter typically isn’t the best beef demand season, especially for middle meats. The Choice cutout is currently at about $332 and price resistance is at $340. The spring rally will come around April and we should be off the races again. Once you stretch the market and then let a little air out, it always seems to come back with a little more room. It’s kind of like a balloon—just don’t pop the balloon (my own analogy).
We have an interesting situation developing. The newest large beef packer is about ready to open up. Sustainable Beef in North Platte, NE, will be open by April. They plan on processing 1,500 head a day, and with Walmart as a major partner and one of the largest retail beef sellers, they will have a ready market for Sustainable’s boxes. I’m sure it will be touch-and-go for a bit; I just hope they have enough cash on hand to get through this cycle. Good luck folks, I’m rooting for you.
The Ag Center’s Cattle Report had some interesting thoughts a week earlier and said, “It has not been good times for the beef plant operations. Small cow kills have created tough competition for fed supplies and cattle owners have stubbornly held cattle for higher prices. Most analysts are estimating $100-150/head losses at the beef plants and few observers believe this will continue forever or even until the national herd is rebuilt. None of the Big Four meat packers are willing to give up market share and most have other operations in the meat or ag sector that can support losses at the beef plants. This leaves the most likely scenario as the closure of one of the independent beef plants.
“Changing and reducing the number of kill slots competing for fed supplies will definitely improve the economics for the remaining plants. The likely recipient of harm will be cattle owners who will lose some of the pricing structure that overcapacity has provided to the entire beef chain. The margins at each level of beef production are constantly changing and the possibility of a closure has traders in the cattle futures wary of the stability of today’s prices into the future.”
Again, exercise caution and manage your risk. And of course, pray for spring rains. — PETE CROW
