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Record-setting prices not required

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Aug 11, 2017

How the markets have changed in just one short year!

The last couple of weeks have seen a lot of cattle being contracted through various video markets. Most of the major video auctions held large, multi-day auctions resulting in hundreds of thousands of feeder cattle and calves being sold. While the prices seen at these sales are not near historic highs, those involved in both the buying and selling process are mostly optimistic. There seems to be profit potential for all parties involved in the transaction, and this is something we haven’t seen for too long.

Prices are higher for almost all producers who have sold when compared to a year ago. The demand for yearling cattle for late summer/early fall delivery has been exceptional. Prices for fall-delivery calves are at least 10 percent higher than a year ago on average.

Interestingly, the swings in the futures market have not resulted in extreme changes for calves in these videos markets that one might expect. It appears that everyone is taking these swings with a grain of salt. One thing does seem for certain, 2017 will see calf prices be more consistent throughout the marketing year than in the past. There may be one market that is the highest, but the difference between the high and the low for the year appears less dramatic than in the past few years.

Another class of cattle that has experienced exceptional demand are those enrolled in a verified program. Prices for such cattle were likely bolstered by the promise of the Chinese market since many verification programs meet China’s requirements. Based on the cattle I’ve seen sold through these programs, the increased demand looks to have added approximately $10/cwt. to their value.

However, we did see a slight negative impact recently from the export market. Japan is a major destination for U.S. beef, so the announcement that tariffs on frozen beef were increasing from 38.5 percent to 50 percent had a slight negative impact on the futures markets. Both Live and Feeder Cattle futures dropped a little over 1 percent following the announcement.

Closer to home, Montana and the Dakotas have experienced extreme droughts combined with fire this summer. These extreme conditions have resulted in challenges for cattlemen. Management changes have been essential and marketing has been modified for most all producers in these areas.

Many cattle coming out of this region that were sold on the video are being delivered earlier than usual and at lighter-than-anticipated weights. Many producers are also looking to early wean and sell calves immediately to save on the cows and the rangeland. Producers are still hopeful for some late summer rains to grow some fall feed, though talks of selling older, short-term cows are happening.

On this subject, I would like to thank everyone who has rallied behind those affected by the drought and fires. Many ranchers have lost a lot, and, in some cases, all their rangeland. Such losses are beyond hard to cope with. What can you do when you see your ranch and all its history go up in smoke? But the industry has been up to the challenge with neighbors and strangers coming together to help. The amount of feed, fencing, funds, and other donations going into this area has been impressive. I am proud to be a part of an industry like ours that supports each other in times of need.

No doubt most of us would like to see a return to the record prices and record profits we’ve seen in the recent past, especially the cow-calf producer. However, I don’t believe the extreme highs that we reached are sustainable, especially considering the speed by which we achieved those price levels. It is not nearly as exciting to talk about the prices received for calves in 2017, but those prices appear to be more sustainable and realistic for all segments of the industry.

Price levels that provide everyone the opportunity to claim a profit is the ideal sweet spot, and we seem to be near that area currently. Many cow-calf producers I have spoken with are receiving $100- 200/head more for their calves when compared to last year (or more in some instances).

I wish I could close these comments with talk of record-setting prices and profits again, but I am pleased to report an increase in prices from a year ago and an increase in optimism. Let’s hope that this trend continues throughout the fall and into 2018. — DEVIN MURNIN

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