Cattle markets are starting to struggle again. Boxed beef values reached their seasonal peak a couple weeks ago and packer margins are falling, which means they will work at buying cattle cheaper. Then we start a new year, which must be better than 2020.
Jan. 1, 2021 is when NCBA is to start monitoring negotiated cash sales on fed cattle. I’m not sure they will reach their cash goals and make this 75% Plan work. Packers don’t seem interested in participating. However, cattle feeders seem intent on establishing more cash trade volume. They are taking matters into their own hands and selling more cash cattle. I’m not sure how this will work. Is each feedlot going to offer a certain number of cattle? Is it that they will take turns?
When it comes to these alternative marketing agreements, you can’t blame cattle feeders who want to sell on the formula. Last week formula cattle were trading for $178 while cash dressed trade was at $172—that’s another $87 bucks a head. And you don’t have to worry on Monday morning who’s going to buy the show list.
The absence of cash trade has typically been a Southern Plains issue. Last week Texas, Oklahoma and New Mexico feeders sold 11,463 head negotiated cash, which was 21.5 percent of their total volume. Robust trade in that area is 13,000 head and the minimum is 6,000 head. The goal is to have 75 percent of robust trade over 75 percent of a 13-week quarter. Looks like Texas is getting it done.
We all watch the fed cattle market because it eventually takes feeder cattle markets with it. Now we’re going into winter—“maybe”—and beef sales volume is generally slower. Packers know not to process as many cattle. However, we’re seeing tight supplies of slaughter-ready cattle, the result of lower placements last April and May. And the CME deferred feeder cattle contracts are stronger going into spring.
This next Cattle on Feed report is expected to show that we have about the same number of cattle on feed as we did Dec. 1 of last year. Placements are expected to be down around 10 percent with marketings down a couple percent. So, we should go into the new year in pretty good shape. October placements were very low and with November placements low, it should be a good spring for fed cattle values.
Demand for calves has been sketchy this fall. What to do with your light calves? Do you sell them or do you try and carry them through winter and turn them out in spring when the grass comes on? This is a tough question because we have a lot of variables going on. We’re in a full-on drought and it is getting bigger, according to the NOAA Drought Monitor. It’s starting to encroach into the Corn Belt, one of the major feed-producing regions. Frankly, I don’t feel good about this drought. Snowpack in the Colorado Rockies is thin. And corn prices are around $4.15 a bushel. CoBank just released a report estimating feed costs will be 12 percent higher next year.
We’re already seeing liquidation of cow herds. Cow slaughter has picked up over the past few weeks. I sure don’t want to see the likes of the 2013 drought when we liquidated several million cows. All feed stuffs were in low supply; any kind of roughage had value, even rice straw.
The annual cattle inventory report that comes out Jan. 31, 2021 is expected to show that total cattle inventory will be 1 percent lower than last year. Replacement heifers will be down, and the total calf crop is lower due to breeding problems in the upper Midwest.
Lower total inventory combined with the great demand we’ve been seeing should pull cattle prices up again.
I know this has been a tough year on commercial producers and if this drought doesn’t clear up it could be even tougher next year. It might be time to think about alternative marketing plans. The market will take care of itself and we can work around that.
The tougher thing to work around is Mother Nature and it’s time to start praying for a good winter snowpack and of course, pray for spring rains. — PETE CROW
