Cattle markets delivered during the spring grilling season; we should have a couple weeks of this stellar cattle market, then the dog days of summer will be on us. Fed cattle were trading well with northern cattle trading in the $230 zone and southern cattle at about $220. Cattle feeders should be feeling pretty good earning over $400 per head on current closeouts.
The latest Cattle on Feed report was neutral, with 1.5% fewer cattle on feed, placements down 2.6% and marketings down 2.5%. Overall, cattle numbers are coming down, and seasonally, carcass weights should start coming down too. Front-end supplies, cattle on feed for more than 150 days, are starting to come down as well. Supplies are set to get smaller for the balance of the year.
Packers are struggling to keep red ink at a minimum, and processing fewer cattle to keep the Choice cutout at high levels is their only chance at this point. The Choice cutout reached $360 but should cool off going into the Fourth of July. The average Choice beef reached a new high in April, averaging $8.83/pound. Retailers are going to need to raise prices to keep this party going. Beef demand has been remarkable, but packers are losing $150 per head on beef while they are making money selling pork and poultry. Consumers appear to feel good about the economy going forward. One thing is for sure: folks will have more disposable income if this big, beautiful tax bill gets passed.
If you’re selling calves or yearlings, you’re loving life. If you’re buying calves for grass, you might not be liking the arithmetic, and cattle feeders certainly don’t like the price of replacement cattle. Holding the Mexican market out of U.S. trade because of the screwworm episode hasn’t helped much. I would assume that we have 400,000-500,000 fewer head outside of feedyards.
Then, at some point, folks are going to want to hold back replacement heifers. The Cattle Report made an interesting observation recently. They said, “Broad areas of the plains have been home to many stocker grazing programs. From eastern New Mexico, parts of Arizona, the Texas Panhandle, the Osage in Oklahoma, the Flint Hills in Kansas, and parts of other states, many operators purchase calves and sometimes yearlings to turn out on summer pastures. These cattle flowed back to the nation’s feedyards in the fall and furnished most of the fall placements for many feeding regions of the plains.
“This year’s grazing conditions are ideal with abundant forage, but the economics of putting together a grazing program are discouraging. The purchase of a 500-lb. calf at $400 to graze to 800 lbs. paying 60 cents for the gain would be a breakeven close to the current board price for the fall. Experienced operators know if everything goes according to plan to only get your money back, this is not an investment worth pursuing.
“Many operators are foregoing stocker programs and instead opting for mother cows or breeder heifers. The pool of stocker cattle to support this activity is not sufficient for the pasture available and the prices are too high. Pastures across the plains will slowly or maybe quickly be converted to herd rebuilding. This is the way markets and price signals should function and will lead to the desired result of a larger beef cattle herd.
“As the pasture use changes to breeding, feedlot placement will change with it in the fall. Fewer yearlings will be available next fall for feedyard placement. The cattle cycle has been slow to rebuild because the necessary factors have not been aligned properly to encourage rebuilding. Now Mother Nature’s blessings this spring combined with sky high calf prices creates the optimum environment for rebuilding the breeding herd.”
As usual, we will need Mother Nature’s help to make more cows and rebuild the nation’s beef herd. Rain has been in short supply in the western Plains and the Intermountain West. Who would have thought we would see $300 yearlings? It’s remarkable. But somebody is going to need some replacement heifers soon.
Shorter beef supplies will increase going forward. Some market watchers are expecting total beef production to decline to 26.1 billion lbs. this year, while USDA has recently downgraded their forecast to 26.42 billion lbs. from 26.7 billion lbs. This market could get even better. Pray for more rain. — PETE CROW
