It looks like the cattle markets want to take a break after recent record-breaking prices. The five-area weighted average last week was $180.44 on live steers and $289.77 on delivered dressed steers. Many market analysts are thinking that the week ending April 14 marked the winter/spring high on fed cattle prices.
April futures were bouncing around last week, mostly down. The basis between cash and futures is around $5 on the cash premium. The June live cattle contract is down to around $163, and it will be interesting to see where it goes in supporting the cash market. It will be interesting if April live cattle actually converge when they fall off the board at the end of April.
There seems to be some controversy going into the summer months when fed cattle supplies tend to grow. The boys at CattleFax think we will have only 1-2% fewer fed cattle available than last summer, when the market was trading in the $140 range. And there was plenty of beef available last summer. I’m thinking we will have about 5% fewer cattle available when you plug in cow slaughter. Salvage values on cows and bulls are at all-time highs, but again, this is the seasonal low for cow slaughter.
The guesstimates on the Cattle on Feed report for April 1 were down about 5%. Placements are expected to be down 5% and marketings down just 1%. Placements have been below year-ago levels for several months.
It is interesting that northern fed cattle are trading $6 higher than southern Plains cattle. Northern cattle grade so much better than southern cattle, which shouldn’t be a surprise to anyone trading in those markets. Packers are chasing quality because it sells. They seem to pay the most for cattle weighing 1,450-1,550 lbs., which after this past winter, cost a lot to produce. The last closeout I saw showed feeders earning about $90 per head, which is about what packers are earning per head.
Our friends at the Ag Center’s Cattle Report say, “From a supply standpoint, the rally in beef prices is entering the beginning, not the end, of the rally in prices. The most severe crunch for supplies of beef is months away and the end of the cycle is still two years out—weather cooperating.
“Everyone knows the supply side is only one part of the equation. Even in the best of times, beef shortages can kill demand with price. These are not the best of times, and an open question is the possibility or probability of a recession. The degree or magnitude of the recession will be unknown but losing market share is a certainty, and regaining beef market share following the rebuild of the herd will be difficult.
“The condition of the marketplace is bullish for cattle but that does not translate into an uninterrupted rise in prices. There will be adjustments along the way and the ultimate price level reached will depend on many factors—most of which are unknown at present.”
One thing I learned recently was the dramatic difference between live hogs and live cattle spreads. May hog futures were at $78.77, while April live cattle were at $175.42. Last fall, hogs were trading in the $120 zone and cattle were trading around $150. This has more to do with shifting demand going forward. Hogs have seen a dramatic decline since January when they were trading at $100/lb., and the competing meat situation will come into play this summer as hog producers will be trying to buy back market share and expect retailers to feature more pork items this spring.
So how low can this fed cattle market go during summer? The typical break is about 14%, which would suggest August fed sales to go down to $156 or so. Honestly, I can’t see that happening under the circumstances. However, August live cattle futures are priced at $163.75 now. So, what’s it going to be? I remain an optimist.
Now that we’ve seen the market respond to supply demand signals, do you really want to see the government get involved in cattle trading? Do you really want legislation governing how the market should operate? This may not be a typical cattle cycle. It’s still dry in the central southern Plains states. Holding back replacement heifers may be difficult if they don’t get those spring rains. — PETE CROW
