May 29, 2009
COMMENTS New ag economy

It’s time to start thinking about the summer cattle markets, or perhaps what to do this summer about the fall market, when most everyone delivers cattle. The big video sales are gearing up and we’ll see what the first high-profile sale produces. These video sales seem to represent a peek into the fall calf and yearling markets. Last year, the videos showed us it was better to sell earlier than later. History has shown that marketing cattle during the big, early summer videos has produced the best prices for calves and yearlings in more years than not. I would have to say that in relative terms, the feeder cattle markets look very strong. The Chicago Mercantile Exchange feeder cattle index is at $100.22 and most of the fall feeder cattle futures contracts are around that $101-103 zone, despite the price of corn. We just got through what should have been the best demand week for beef and it wasn’t. The industry couldn’t get processing above 700,000 head, which should make us all think about the demand side of the business. Choice boxed beef values hung in between $145 and $153 through Memorial Day buying. And, it seems that the values of the middle meats were much stronger than they were in February, as much as 30 percent higher.

Feeders are still running a bit of a premium in relationship to fed cattle contracts compared to the same time last year, which could suggest that feeders are still competing among themselves for a more limited supply of cattle. There is a tremendous over-capacity of feedlot bunk space.

One thing we can be certain of is that the cattle markets haven’t been terribly consistent over the past few years. The market highs and lows are being made at unusual points in time. In years past, July and August were always where the market ran into trouble. Last August produced the best fed cattle market all year, thanks to great export demand. All the historical relationships that market analysts would refer to have changed with our new ag economy The May 1 cattle on feed report last week showed us that consumers simply aren’t buying as much beef. Marketings were down 6.9 percent from a year ago. However, Andy Gottschalk at says that the marketing rate is quite good as it relates to cattle on feed and the number of cattle sold each week. April was the second-best marketing rate since 2004. Year-to-date, the volume of cattle processed is 6 percent lower than the same period in 2008 while beef production is only down 4.5 percent, which tells us carcass weights have been a bit of an issue this year. They have come down in recent weeks, but analysts expect to see them get heavier into fall. One aspect of the cattle on feed report that was interesting was placements. Overall placement numbers were 4.2 percent higher for April than a year ago. But, there was an increase of 13 percent on placements of cattle under 700 pounds, which could take some pressure off the August to September market. It would also appear that the cattle feeding business in several regions is having a hard time finding replacement cattle. Placements in Arizona were down 38 percent; Washington was down 21 percent. All the far western feeding states were down in cattle on feed numbers. This may suggest that the supplies of dairy feeder steers are down significantly from a year ago. If demand doesn’t pick up, I wouldn’t expect to see cattle prices move much higher. Inventory has been at a historic low point for nearly a year, which hasn’t given us the supply side advantage we expected.

Without something happening on the demand side, it’s going to be difficult to see fed cattle prices move much higher. This also makes me think that the price of feeder cattle today could be close to as good as it gets going through this fall. I certainly don’t want to rain on anyone’s parade, but we still need to recognize a good market when it arrives.

We just went though 10 years of increasing beef demand which hadn’t been seen in the 20 years prior to that growth. But here we are, on the old supply side of the market, adjusting inventory to demand.

For now, it’s time to realize what a good market is for feeder cattle. It will get better when consumers have some extra discretionary income. Then, this market should come back with a vengeance. — PETE CROW