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The storm has passed

Livestock Industry Opinions
Aug 29, 2014

The perfect storm has passed and it’s difficult to see if these conditions will ever produce a market like we saw this past July.


Most of us believe that the markets rose so high that a bubble was inevitable. And that is exactly what happened. Beef wasn’t necessarily the problem but simply the scant amount of meat on the market at that time. Total meat supplies were down 4.4 pounds per capita from a year ago, which is a substantial amount; total beef supplies were down 3.5 pounds per capita. The markets did their job and rationed a small supply of meat. Many market watchers are saying that the cash high of $165 may not be seen again for several years.

The combination of lower cattle supplies, the PED virus in the hog industry and breeding problems in the poultry industry all helped create this perfect storm, and then throw in Russia’s import bans, which meant more for the pork and poultry industry than the beef industry. It all created a logical place to break the market. Apparently the Canadians had a lot of their pork production going to Russia that will need to find a new market.

The beef markets are not going to unravel any time soon but we may not see the kind of perfect storm conditions for a while. Most market analysts seem to think that live cattle futures will comfortably trade in the $140 to $150 range for the balance of the year and cash should retain its premium.

The Aug. 1 Cattle on Feed report showed that fed cattle inventories were just 1.9 percent lower than a year ago. Placements were down 7.4 percent and marketings were down 9.3 percent from a year ago. This is telling me that we have relatively good inventory for maintaining this market and that we’re not selling as many cattle as we are placing.

Simple math tells me the marketing rate is not as good as it should be. The October futures contract is at a discount to August, telling us that the market is expecting greater supplies of fed cattle. However, it did come up $2.27 last Thursday to $150.10. Carcass weights are showing us that feeders are content making them bigger and you can’t blame them with the price of feeder cattle. One item that’s bugging me about the Cattle on Feed report is that we have 9 percent more cattle that have been on feed for more than 120 days. But recent placement patterns have suggested that feeding calves is becoming justifiable again.

Andy Gottschalk at Hedgers Edge said: “Five consecutive months of declining placements (down 523,000 head from the prior year during the March- July period) has set the stage for this supply pattern. During this same period, marketings declined only 404,000 head. This combination results in a net shortfall, placements versus marketings, of 113,000 head.

That being said, the marketing rate needs to accelerate in the coming months. Carcass weight data confirms the need to expedite marketings. Steer carcass weights are 8 pounds above year-ago levels, while heifer carcass weights are 3 pounds above year-ago levels. Despite some of the year-to-year gain in carcass weights being attributed to very favorable feeding conditions overall, the marketing shortfall experienced of late cannot be dismissed.”

We still have a near perfect scenario when you can produce a pound of gain for 80 cents against a market price of $150; feeding costs have never been this good relative to the market. And with the corn market at a relative low, corn farmers are back in the cattle feeding business, creating greater competition for feeder cattle.

This feeder cattle market has such great demand that I don’t see it fluctuating much for quite a few years out. The folks at the Livestock Market Information Center have estimated cow/calf operator’s returns of $445 per cow and the average price of 500- 600 lbs. steer calves are 53 percent above year-ago levels. Cow/calf returns are the best they have ever been.

Now what to do with those open cows this fall. We are on the front end of the cull cow marketing season. It may be worth a closer look on how you treat those cows this fall. Feeding cows may all of a sudden make some sense with the slaughter cow market between $1.10 and $1.25 per pound and feed costs as low as they have been, and they may go lower. This could be a good strategy this year: holding those cows over until the winter spring marketing season when slaughter cow markets reach their cyclical peak. These lower feed costs are a game changer. — PETE CROW

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