Cattle prices are moving into record territory, with Thursday, April 6 averaging a new record daily fed cattle price of $172.33/cwt. This was followed by Friday having a price of $175.87/cwt. This was followed on Friday with a price of $175.87/cwt. The previous record daily price was $172.08/cwt on Nov. 26, 2014. Fed prices moved higher last week to $181.
How high can this market go? Many market analysts would call the market at its peak, but the cattle just aren’t there. Packers are processing for May orders, which will more than likely be short.
The Choice cutout was $298 and will go higher, and packers will process fewer cattle so they can keep the cutout high and their margins black.
Looking at the June live cattle futures, it is currently $10 behind the April contract, so traders are making a seasonal play. Cattle prices typically fall in the summer market, but cattle placements into feedyards would suggest August could be a contraseasonal market.
So how is a $300 Choice cutout going to affect demand? The folks at the Ag Center’s Cattle Report said, “Quality grade has become a driver for price. Packers have pushed producers for better quality cattle, and in many instances that has translated into more Angus cattle. Grid premiums have rewarded high grading cattle, especially animals qualifying for the CAB program, and other premium-based channels.
“The introduction of the composite breeds mixing dairy with Angus and other beef breeds has delivered a steady stream of high-grading cattle. It is not unusual for these composite breeds to deliver 80+% Choice, including a high percent of Prime. The small differences in carcass yield have been overwhelmed by the rewards from the quality grade.
“With all beef supply chains filling with high-quality cattle, a recession looms. The question of how high-priced beef will fare when household budgets are squeezed and consumers are struggling to match daily living costs amid high gasoline, rent and interest rates. The value proposition of high-priced quality beef might be questioned.
“The never/never programs of the past might find themselves left in the past. The willingness of consumers to suffer a $500/head increase in the cost of these expensive programs eliminating all hormones and antibiotics, might not be present in today’s marketplace.
“Attention in the beef houses might turn back to cutability—a hot topic in the 1980s when Cargill produced studies showing the vast difference in value provided by animals with high cutability. This quickly led to the introduction of many of the exotic breeds found today into the nation’s cattle herds. Producers will be raising cattle for red meat cutout and not quality grade.
“It is likely the pendulum will swing back after a surfeit of black, high-grading cattle. Costly premium programs will find resistance at the consumer level. Ultimately, retailers will note the change and opt for the most balanced compromise between quality grade and cutability—cost and quality. The outcome might be the optimum Charolais/Angus cross—long recognized for its ability to forge the gap between all desired traits.”
Will fed prices follow this typical seasonal pattern this year? Derrell Peel, Oklahoma State University Extension livestock marketing specialist, said, “In 2021 and 2022, the strong uptrend in fed prices offset seasonal tendencies, with prices moving continually higher. There is good reason to expect the uptrend to continue in 2023. The seasonality priced into the markets now may fade as markets trend higher going forward.
“Feedlot inventories are just beginning to fall with ever-tighter feeder cattle supplies and are likely to continue decreasing at least through 2023, pushing fed prices higher. Fed prices may increase more slowly or plateau briefly in the summer months but are not likely to have a typical seasonal decline going forward.”
Feeder cattle markets are also on their way. Oklahoma’s average price for 500-550 lb. steer calves averaged $251.41 recently. The all-time high was October 2014, when they averaged $306.87. The 800-850 lb. feeder steers averaged $189.50 recently, with the all-time high of $238.87 also in October 2014. Fall futures have most feeder cattle contracts priced above $230. I would imagine that feed costs may temper feeder cattle markets.
This market does look wide open for a while. We have good moisture in the West for a change and grazing should be abundant. However, we still need those spring rains—you know what to do. — PETE CROW
