Markets have been moving along nicely the past several weeks, until last Wednesday when feeder cattle futures took a $4 hit on the January contract. Nearly all ag commodity contracts were down across the board. Corn was down a bit and settled at $3.75.
The word was that China is hesitant about resuming ag trade and being held to a specific dollar amount—$50 billion annually in ag purchases. These China trade negotiations have been on again then off again for so long that no one really knows what to do. I think our best year trading ag products to China produced $18 billion in revenue. Other analysts are claiming the algorithms at the hedge funds kicked out a sell signal. We’ll see how the cash market responds.
Your beef is selling very well. The Choice cutout is currently at $242 and appears to be trading strong going into Thanksgiving. Packers are processing a few more cattle than last year. Year to date, we’ve processed about 300,000 more cattle than last year. However, beef production is down about 300,000 pounds from a year ago.
Cattle feeders see how high boxed beef is trading and are holding out for more money. By mid-week 33,500 head traded between $115-117 and $182 dressed. There was one small sale that took place at $118 early in the week. The Fed Cattle Exchange’s Wednesday sale had over 1,300 head offered yet didn’t sell a thing and passed over bids of $115.50.
The number of cattle placed in feedlots last October should be big, which it typically is. Many analysts are looking for feeder cattle placements to be up 15 percent over a year ago, and I would bet a lot of those cattle have been hedged against winter fed contracts. Analysts also figure that the heavy placements will push the total cattle on feed number up 2 percent over a year ago.
Cattle numbers are getting harder to determine after an extremely tough winter in the North (along with the winter before that), flooding in the Midwest, extremely dry drought conditions in the Southwest and dry conditions in the Southeast. Producers lost a lot of calves through winter, estimates of 15 to 20 percent in some areas. Then flooding would have made rebreeding cows difficult, if they made it to breeding season. Then first-calf heifers coming around for their second breeding would, most likely, be stressed having their first calf in sub-zero weather. Nearly every part of the country experienced something different in weather conditions.
The upcoming January Cattle inventory report is going to be interesting. The Livestock Marketing Information Center reported that dairy cow numbers are much lower, which was expected. They also report steer slaughter is 2 percent lower than last year, while at the same time fed heifer slaughter is much higher and I suppose there would be a lot of heiferettes in the mix. USDA statistics showed that the overall calf crop in 2018 was 1.8 percent higher than 2017, which would be expected after a rapid herd buildup.
So where are all those 2018 steers? Has the beef cow herd stopped growing? It’s sure looking that way, which should bring more normal calf prices going forward, especially if beef demand remains strong. Cow slaughter is running 3.2 percent over a year ago and fed heifer slaughter is running 7.4 percent over a year ago. Fed steer slaughter is down 2 percent from last year. The replacement heifer market has been a little sluggish. There are a lot of bred heifer sales coming up from reputation outfits. The end of the year is when most bred heifer activity takes place. And we know that many heifer calves that were intended to be bred didn’t this past year.
Visiting with folks, they’re telling me that they are behind on their normal workflow. Labor shortages and weather-related issues have put a lot of folks behind, which has also delayed their marketing plans. I’m not hearing a lot of optimism about the bred heifer market going forward.
It’s hard to get a handle on cattle numbers when every region has experienced so many different weather-related production issues. Some areas are too dry and they’re selling cows, or they had too much moisture and couldn’t get cows rebred. Or they lost calves in the nasty winter we had.
What USDA comes up with for the Jan. 1 Cattle inventory report will be interesting to say the least. But from what I’m seeing and hearing, I believe cow herd growth is done. Let’s hope for continued strong beef demand and stronger export growth. — PETE CROW
