I’ve got a feeling we’re heading into a repeat of a 2013-14 weather pattern which was the most damaging period to the livestock business I can remember. Look at the Drought Monitor, which has been showing a wider and wider area of affected regions. The Great Basin is perhaps in the worst condition. But the Western Plains Intermountain West is suffering from the dryness.
Corn prices are now a big factor in the livestock business. Last week corn was around $5.50 a bushel then backed off a quarter to $5.25. Then the feeder cattle market took a little rally on the board, and at the country markets.
If you’re starting to load up on lightweight calves for your summer grazing program it’s time to exercise caution and maybe not take on as many as a year ago. If we don’t start seeing some moisture soon, summer grass may be at a premium. I would also look at your marketing month and keep an eye on the feeder cattle futures. August is at $150.05, September is at $151.50 and October is $152.27; these prices are as good as we’ve seen during 2020. Analysts expect the calf crop to be down 35,000 head this next year.
With corn as high as it is, there is going to be an interesting supply/demand situation developing. With cost of gain sure to be over a $1 a pound, what will cattle feeders do when they want to replace their fed cattle pens? There will be fewer feeder cattle, but not enough that they will compete very hard to own them. There may be even fewer feeder cattle in 2022.
The price of beef will need to go higher, which will influence consumer demand. Then we need to see some inflation on fed cattle prices and, unfortunately, many economists are calling for a round of inflation in response to our nation’s overspending and desire to keep interest rates low.
“Beef buyers apparently want to get more beef around them,” said the CME Daily Livestock Report. They also said that the week ending Jan. 15 that USDA reported packers sold some 565 loads of beef for delivery 90 days or more in the future. For the comparable week last year, packers sold only about 204 loads, and the five-year average is 145.
“The Choice cutout has been trending higher this past week which is not surprising this time of year. Higher chuck and round prices have helped bolster the cutout and fed cattle slaughter is about steady with last year. Packer margins have been excellent for some time and that trend continues. Given the current circumstances it is understandable why futures want to build a premium going into the spring and summer. The only question is how big that premium needs to be given broader inflation trends and consumer pent-up demand.”
This next Cattle on Feed report is expected to show placements down for the third month in row and cattle on feed is expected to be down slightly and marketings up just a little bit. Slaughter so far this year is 236,000 head behind last year, which is essentially two days’ kill. Carcass weights are still at record highs—11 pounds over last year at 899 lbs. We heard of one trade in Iowa where a feeder sold 1,600-lb. steers for $105/cwt. The prevailing market this week is $110-111. There is no good reason anyone should intentionally grow steers that big.
With expensive feed comes expensive cattle and I would have to assume lighter cattle as well. Producers will want to put as much gain as possible outside the feedlots, which may be a tough thing to do. USDA said that hay stocks nationwide will be down a half of a percent, 84,020 tons in December. Hay supplies are set to be even lower in the states west of the Mississippi River. The la Niсa weather pattern is telling us to expect more dry weather. Snowpack is thin for this time of year but I’ve seen a winter’s worth of snow come in April so there is hope.
I honestly hope we don’t have to liquidate large cow herds like we did in 2013-14, which was caused by widespread drought that lowered hay and grain production. But it did give us $3 calves which was great, if you had them. So, keep praying for spring rains. — PETE CROW
