Cattle prices gain more traction

Grass rally for calves and feeders continues

Buyers continued their aggressive pursuit of calves and feeders for spring and summer grazing amid active trade and heavy receipts in the major marketing areas, according to the Agricultural Marketing Service (AMS). Calves sold steady to $5 per cwt higher, while yearling cattle brought mostly steady money to $3 more.
“Demand remains very good for heavier stocker cattle weighing 500-700 pounds, which is just right for hard-wintered cattle coming off winter pastures,” AMS analysts say.
It helped that futures markets continued to seem downright calm and eerily normal compared to recent standards.
After an average of 33 cents lower in the front three contracts week to week, Feeder Cattle futures were an average of $1.28 higher.
“Market participants may finally be getting a grasp on the value of feeder cattle and finished cattle (see below),” explained Andrew P. Griffith, agricultural economist at the University of Tennessee, in his market comments last week. “The firming live cattle market is what is driving increases in the feeder cattle market which is how the market works most efficiently.”
Although optimism remained for cash fed cattle to bring steady to higher prices, there was little action through Friday afternoon. A few dressed sales were reported at $214 in Nebraska and Iowa-Minnesota on Friday—mainly steady with the prior week—but too few to trend on limited trade and light demand.
“Feedlot managers continued holding out for stronger finished cattle prices this week, even though Live Cattle futures were lower to end this week than one week ago,” Griffith explained in his market comments this week. “This bodes well for feedlot margins that have been mired in red ink for many months now.”
Live Cattle futures closed narrowly mixed week to week, from an average of 32¢ lower to an average of 45¢ higher.
“After a two-week rally, cattle futures showed a little sign of fatigue this week, but there was no volatile movement,” AMS analysts say. “There is still plenty of caution in the market as deferred months in Live Cattle are showing unwillingness to build premiums for now.”
Choice boxed beef cutout value was $3.30 per cwt higher week to week at $220.97 Friday afternoon. Select was even at $211.99.
“The fed cattle market is starting to hear talk of tightening supplies, and packers will need to maintain inventory, but they are sure to exercise buying discipline,” AMS analysts explain. “Boxed-beef continued to see positive moves this week but a pullback could be in order going into Easter.”
Outside markets also provided support this week.
The Dow Jones Industrial Average closed 426 points higher week to week and the S&P 500 was up 51 points.
Higher oil prices appeared to be a key driver to investor optimism, along with positive domestic economic data including increased manufacturing, construction spending and jobs growth.

Grass rally for calves and feeders continues

Maybe, just maybe, the gut-wrenching volatility defining so much of the past couple of years is losing some steam.
“There are a number of indications cattle markets may be returning to somewhat more typical behavior,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments.
For one thing, he explains feedlot margins are finally improving enough that positive returns are in sight.
For another, Peel explains value of gain has recently begun reflecting more closely feedlot cost of gain once again.
“The value of gain calculates to the range of 70-80 cents per pound. This suggests that feedlots are pricing feeder cattle in a manner that reflects equilibrium across weights,” Peel says. “This is the first time in many months that the value of gain in feeder prices is consistent with broader cattle market conditions.”
On the other side of the ledger, Peel points to more typical patterns in the wholesale beef market.
“So far in 2016, middle meats are advancing or holding value relative to weaker end meats,” Peel explains. “This long-term tendency for middle meats to be the strongest part of carcass value has been reversed much of the time in recent years, going all the way back to the recession in 2009. Retail beef prices peaked in mid-2015 and are working lower as beef production begins to grow.”
Subsequently, Peel says the ratio of the retail beef price to that of pork and poultry has begun adjusting to more typical levels.
As much as anything, Peel says increasingly seasonal behavior is the most obvious sign of returning, relative market stability.

“Dramatic price trends, both up and down, over the past couple of years have overshadowed seasonal market tendencies,” Peel explains. “Though cattle and beef prices are expected to trend lower over the coming months, that trend will not be pronounced and markets are expected to behave much more seasonally.”
With seasonality in mind, Andrew P. Griffith, agricultural economist at the University of Tennessee, pointed out in his market comments last week that the typical peak in cull cow prices is on the horizon.
“Slaughter cow prices tend to peak in May or early June, which is when many producers get busy with hay and crop work, but the operation may benefit more with timely marketing of cows,” Griffith says. “These cows make up 15-20% of the revenue in a cow-calf operation.”

USDA 10-year projection sees 10% more beef cows

If USDA’s Agricultural Projections to 2025—released in February—are close to being in the ballpark, there will be more beef cows in this country by 2025 (33.2 million) than since 2006 (33.3 million head).
For comparison, the 30.3 million beef cows at the beginning of this year represented a 4% increase year to year.
For beef cattle, analysts with USDA’s Economic Research Service (ERS) explain, “Lower feed prices than in the past several years raise producer returns and, coupled with improved pasture, provide incentives for herd expansion in the cattle sector and increases in beef production over the projection period.”
The projections see a total U.S. cattle inventory of 97 million head by 2025. Total inventory at the beginning of this year was 92 million.
The projected 5-Area Steer price declines from $141.75 per cwt this year to $121.63 in 2025.
Along with increased beef production, the USDA projections see increased pork and poultry production.
“As production increases, consumption of red meats and poultry is projected to rise from about 211 pounds per person in 2015 to about 219 pounds toward the end of the projection period,” ERS analysts say. “Nominal prices for beef cattle, hogs, and broilers are projected to decline through most of the next decade as production levels for overall meats rise. Livestock prices begin to level off and increase slightly toward the end of the projection period as production gains for beef, pork, and poultry slow and exports continue to grow.”
Predicting the future is always iffy business, no matter how rational the assumptions. In this case, USDA’s assumptions for their projections include global real economic growth over the next decade an average of 3.1%.

CATTLE MARKET WEEKLY by Wes Ishmael

Calf-Feeder Trade

Regional Steer Price Average

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