Perfect storm

Livestock Industry Opinions
Jul 25, 2014

Cattle markets took a little breather just after the 4th of July holiday, dropping a few bucks on fed cattle, but came roaring back, appearing ready to break some new records and did, reaching $162-163 live. I know that everyone selling cattle right now is star struck by this market and how good demand has remained. The second quarter has posted a 6 percent increase in beef demand.

Looking forward, it’s hard not to think this market has more room to improve. Beef supplies are perhaps as low as they have ever been, worldwide, and we truly have a global market for beef. I would also imagine that with feeder cattle prices as high as they are, it’s going to be tempting to want to sell all your heifers and cash in on this market. But I would suggest that you keep and breed as many heifers as you can. This market will be good for a while.

This is that time of year when the fed markets are supposed to move lower. Fed cattle weights are starting to exceed last year’s slaughter weights, even when Zilmax was all the rage. Packers have done a good job keeping production in line to manage their margins. We have a Robust choice beef cutout value that was steady $2.52 last week. Retailers have moved consumer beef prices higher, averaging $5.45 last month, and they are certain to move higher yet. It appears that packers are comfortable processing 575,000 head a week.

Ninety-percent lean manufacturing beef has gone through the roof trading at $2.95 last week; this is 45 percent higher than a year ago. There is a huge demand for ground beef while demand for ribs and loin cuts is under pressure. Cow and bull slaughter for the year is down 17 percent year over year. Ground beef processors are scrambling to get the product they need and are turning to Australia and New Zealand for those lean beef supplies.

According to the Daily Livestock Report, Australian packers are the only game in town for imported lean manufacturing beef. Australian packers have been ramping up U.S. shipments and June imports are expected to be 90 percent larger than a year ago. Australian cattle slaughter is very heavy due to drought conditions but that will end, putting more pressure on lean beef markets. According to Meat and Livestock Australia, their cattle inventories are down 8.8 percent from a year ago and have a historically small cow herd too.

U.S. beef exports continue to grow with Hong Kong doubling their beef imports over last year and Mexico importing 48 percent more beef than a year ago. Exports have grown 8.4 percent this year.

The corn markets have been dropping like a rock and cattle feeders are enjoying their lowest corn costs since 2010. Corn reports are showing that 76 percent of the nation’s corn crop is in good to excellent condition, 10 percent better than a year ago.

Yields are expected to be larger than 2009’s record yield of 164.7 bushels per acre. Total corn crop estimates are at 13.860 billion bushels for the new crop. A large crop, along with a larger than expected carryover of old crop corn of 1.246 billion bushels, has driven the December corn futures down to $3.70.

Even with $3.70 corn prices, cattle feeders are buying into some large breakevens this fall. With 700-800 lb.-feeder steers trading at the unheard of level of $220, cattle feeders are looking at a $164- 165 breakeven on finished steers this fall and I think they will get there. The futures markets have not provided any cover on those cattle, yet. October and December live cattle futures are currently trading at $158. And the cash market continues to trade at a $5-$6 premium to futures.

Low supplies of beef worldwide have moved this market to an amazing level and there really doesn’t seem to be anything holding it back. Continued drought in the far West has hampered any expansion of the national cow herd. The mid-year cattle inventory report, due out last Friday, is expected to show no growth in the herd. More heifer retention is expected but will be offset by a smaller beef cow herd so we won’t likely see beef supplies grow in 2015. But if Mother Nature cooperates we could certainly see some expansion in 2016. Enjoy the ride. It’s not over yet. — PETE CROW

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