Cattle markets have been a seesaw ride ever since this Ukraine conflict started. I still can’t believe one man can simply start a war. Russia is one of the largest countries in the world and is blessed with huge natural resources. Now, they are having trouble selling those commodities, like oil and gas, nickel, wheat, etc.
I would have to imagine the Black Sea is their main shipping port for many of those commodities, and one would have to think that protecting the region’s infrastructure would be kind of important. Last I heard, 3 million refugees have left the country.
Last week there was some cash trade at $140. The first two days of the week, futures markets were cooperating, and then on Wednesday it took another crash. Then some cattle sold for $141 Wednesday, so it looks like feeders have a little leverage right now.
The greatest threat of this conflict is inflation. The beef cutout appears to have bottomed out at the $250 level, which should give consumers a little relief from surging fuel prices. Oil shot up to $130 a barrel two weeks ago but has now dropped below $95. Energy drives every industry in the world, and renewables just won’t get it done.
The Federal Reserve finally raised interest a whopping quarter point, 0.25 percent. I can’t see if that will start any avalanches of fear. The last time we had big inflation was in the 1980s, and interest rates were at least 12 percent. We have had cheap money for quite some time.
One bright spot is that cull cows and bulls are in demand, with some auction markets reporting $80 cows and $110 bulls. David Anderson, Extension economist at Texas A&M University, looks at the non-fed markets: “Cow prices are increasing in spite of large cow slaughter. Weekly cow slaughter during the first two weeks of February totaled at least 145,000 head per week. That was the largest weekly slaughter since the first week of December 2012. It was the biggest two consecutive weeks since the fall of 2011.
“Beef cow slaughter has been extremely large, rivaling peak fall slaughter levels. This large beef cow slaughter is coinciding with seasonally large dairy cow slaughter, which typically peaks early in the year.
“High cow beef prices are providing some insight into beef demand. Both the cow beef cutout and the wholesale 90 percent lean beef for ground beef are well above a year ago, at $229 and $284 per cwt, respectively. Wholesale middle meat prices have dropped in recent weeks. For example, both wholesale ribeye and strip loin prices have fallen below year-ago levels. There is some evidence of consumers shifting purchases to more ground beef and fewer steaks in response to high retail prices. There is also evidence of some shifting to less expensive Select beef cuts and away from higher priced Choice and Prime.
“By the last week of February, slaughter had eased to 137,000 head, remaining larger than the same week last year. Both dairy and beef cow slaughter declined. Increasing milk prices should slow dairy culling in coming weeks, as it often does seasonally. Beef cow culling is going to be greatly influenced by drought and costs. The rate of culling over the last year should have already moved most of the older, less productive cows. On balance, reduced dairy culling should pull down total cow slaughter and support prices in coming weeks.”
Feeder cattle have taken the brunt of this volatile market; corn prices have surged to the $7.50 mark, which has put the brakes on advancing feeder cattle values. However, futures markets have feeders priced at $180 and higher this coming fall, so I wouldn’t worry about the fall market just yet.
Fed cattle markets will see more market-ready cattle coming around June/July, which is a typical seasonal trend. Grain markets will be the commodities to watch during this conflict. And I suppose diesel and fertilizer prices will be important to watch too.
The cost of producing crops will go higher, and yields may decline. The Drought Monitor is reaching into the Corn Belt, which may pose problems. What we need more than anything in the ag world is moisture, and again, I will start praying for rain and now also peace. — PETE CROW
