Cautious optimism

Opinion
Apr 10, 2009

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Cattle markets are moving a little better; fed cattle trade was up to $85 last week and feeder cattle are a bit stronger. Grass fever should be adding a few bucks to the calf market soon, if it isn’t already in some areas. With the summer high-demand grilling season around the corner, it will be interesting how consumers respond to beef prices. Let’s hope they feel like grilling steaks rather than hamburgers.

The big question I’m often asked is, “What’s the market going to do?” I wish I had a crystal ball because it’s difficult to anticipate what a 500- to 600-pound calf will bring in the fall. The video auction companies will start holding their big feature sales in a few weeks, which should give us a peek into what will happen to the calf markets this fall. I would have to say that in nine out of the past 10 years, the June-July sales get the top prices for the season for fall delivered calves.

The boxed beef cutout value was up to $136 last week due to lower beef production at packing plants. Packers are losing about $50 a head now and having a hard time keeping slaughter levels at 600,000 head. However, current packer losses don’t seem much compared to what cattle feeders have been through. Cattle feeding losses have been as high as $250 a head for months.

It’s ironic that many of the beef market watchers are telling us that beef demand is up, but packers and feeders are losing money. It would seem to me that expanding demand should deliver some kind of profit. The folks at the University of Missouri claimed that beef demand was up 3.2 percent so far this year while, on the other hand, the folks at HedgersEdge.com say that demand is down 2 percent. Who are you supposed to believe? Beef production year-to-date is down 3.2 percent from last year. Cattle slaughter is down 5.3 percent from a year ago. Obviously, record carcass weights have added to the volume of beef produced versus cattle slaughter.

The American Farm Bureau Federation ran their quarterly market basket survey and showed that protein prices are up, which shouldn’t be a big surprise.

Whole fryers were up 9 cents a pound while ground chuck was down 2 cents a pound. The whole meat complex is somewhat confusing at this point.

Another dairy cow buyout is currently being staged. We have heard as many as 300,000 cows could be taken out of production, but several market analysts anticipate around 200,000 head, roughly 15,000 additional cows per week this summer. The big question is how fast they will come to market? If they sell them fast, it could be painful. If they spread the marketings out over several months, it will have less impact on the slaughter cow market. The good news is that there is currently good demand for lean grinding product.

The true volume of dairy cows hitting the market will be limited by the volume of milk producers who make bids to the herd retirement manager, Cooperatives Working Together (CWT). There have been seven buyouts since CWT started operations in 2003. CWT says that they won’t pay more for dairy cows than the open market would. However, they also say on their Web site that they will pay a flat $700 per head for bred heifers. Cows will be priced based on the last 12 months of milk production and must be supported by records. Milk producers still have to bid for the buyout.

CWT membership pays 10 cents per 100 pounds of milk produced to take care of the herd retirement programs. The members of CWT pay more to get rid of cows than the beef producers pay to market beef through the Beef Checkoff Program at $1 per head. There have already been lots of cows going to market. USDA’s weekly cow slaughter report says there have been roughly 90,000 more cows slaughtered this year compared to the same period in 2008. Last week, 111,000 cows were slaughtered, and the mix was roughly 50 percent dairy cows and 50 percent beef cows. It would appear that the beef producing cow herd in the U.S. is still declining.

It’s going to be an interesting summer for cattle and beef markets. One thing I’ve noticed visiting with folks at bull sales this spring is there is an optimistic feeling among producers. Cattle numbers are down and appear that they will continue to decline.

Cattle supplies are low and at some point that will be positive, creating an increase for cattle values. It would be nice to know just when that will happen. — PETE CROW

 

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