Enjoy the markets
Beef and cattle markets were trying to find some direction last week after live cattle ran up to the $134 level and the Choice beef cutout ran above $205 for a short period of time. Last Thursday packers were trying to offer $129 and feeders were asking $133 to $134. Packers had not offered Corn Belt feeders anything as of midday Thursday.
Fact is, with the low cattle on feed numbers, cattle feeders shouldn’t be in a big hurry to sell. The number of cattle on feed for Oct. 1 was down 7.7 percent from last year and marketings were up 6.1 percent with one extra processing day, which is very positive for beef demand. September placements were only 1 percent above last year’s rate, which was low to begin with. Fed cattle are moving through the system very well and will only help to push cattle prices even higher. Feeders are, for the first time in a while, comfortable.
Beef prices are already at their highest levels and consumers are continuing to buy. It does appear that the new resistance level for the choice cutout is $205; a year ago that resistance point was $200 and we’re going to test $210 soon. Packers are currently losing a couple dollars a head processing beef, but they are in a manageable situation. Packers have also had a very good export market to work with.
We’re in one of those times in the cattle business when everyone can make a little money. Packers may slow processing down to encourage the cutout values to stay at the $205 level and higher, but it won’t mean that we’ll start to stack up cattle in the feedlots.
Cattle feeders need to concern themselves with not taking their new-found profits and bidding up feeder cattle, as they have a habit of doing. During those drought years, cattle feeders were very resourceful with the feed stuffs they had available to them. Now that cash corn is below $4, it doesn’t mean they will not utilize corn and bean stalks any longer. Feed costs should be the lowest they have been in five years.
Andy Gottschalk at Hedgers Edge said, “Beef demand has gained momentum since mid-August. That said, the price risk going forward continues to remain on the demand side, should the economy falter.
“The combination of lower weekly beef production, with stable consumer demand, could provide the catalyst to propel prices temporarily beyond the $136 level. If total demand can be maintained at current levels throughout the first quarter of next year, cash prices could temporarily challenge the $140 to $141 level. Given current positive carcass weight and placement data, we have made minor adjustments to our quarterly beef production price estimates,” he added.
The highly anticipated World Agricultural Supply and Demand Estimates report came out last Friday and was expected to show increases in corn and soybean production and a strong export market for the grains. Many analysts are looking for a corn crop around 14 billion bushels which will put a lot of corn on the market and drive down feed costs and the cost of distillers grains. FC Stone released their production estimates a week earlier and is estimating corn yields at 161.2 bpa, and a total crop of 14.367 billion bushels.
Two weeks ago, WLJ Fieldman Jerry York and I were in South Dakota setting up our next WLJ Tour, which will be the last full week of June 2014. We saw dry land corn in the Pierre area producing 145 bpa on stalks that were only four to five feet tall. Many storage facilities had trucks lined up to deliver; there were also big open piles of the stuff on the ground. Corn farmers are the only ones who won’t enjoy this record-setting crop.
This good cattle market we’re enjoying is certainly a supply driven situation. Demand is adequate for what we’re able to produce. Now the market analysts are looking desperately for those signs of herd rebuilding and trying to determine if heifer calves are selling as replacements through the auction markets or counting the number of fed heifers in the slaughter mix.
Rebuilding this herd is paramount to maintaining our beef production infrastructure and moving forward with a healthy demand for our product. We’ve seen more bred heifers offered for sale in the trade publications, so they are there to be purchased and many of the well-bred, detailed heifers are selling for $2,000 a head or more. These are rare times in the cattle industry. Let’s enjoy. — PETE CROW