The market for yearling feeder cattle has stayed quite strong this summer and has appeared to trade without much of a freight basis. For example, 850-pound steers in Nevada are trading at or near the same price as they are in eastern Wyoming. Demand is quite strong for this class of cattle even though cattle feeders are placing them with what seems to be a negative margin.
However, watching the video sales, the calves that are source and age verified, natural and on a weaning and vaccination program are clearly bringing more in some cases, up to $15 more than calves just weaned off the cow and put on the truck.
One thing for certain is that cattle feeders don’t want to feed calves, and especially heifer calves. This past year, the market has sent a clear signal to producers that the top money is in the yearling cattle, and if cow/calf producers are able to hold them over and make yearlings out of them, it will be worth it. With hay and grain costs much lower than a year ago, there could be some opportunities for producers to do just that. With a near non-existent freight basis, it could make that option a bit more attractive, especially if you can cover that basis premium with a contract.
Still, beef consumers hold the trump card for the cattle and beef markets. Unfortunately, there doesn’t appear to be much in the press about the general economy to suggest consumers will be running back to the meat case soon. The hog industry asked USDA for some help last week, wanting them to immediately purchase $50 million in pork products for the various food programs they administer. They also asked them to drop another $200 million on other programs to help hog producers. Ag. Secretary Tom Vilsack said USDA wouldn’t have the money to help pork producers clear excess inventory until the next fiscal year, which starts in October.
Perhaps it´s not so odd that the feds can find $3-4 billion to help the auto industry, but not a couple hundred million bucks to help pork producers. But, all that would do is put more pork on the market and lower the price of all meats. USDA did come up with an idea to help dairy and hog producers with some loan modifications, more than likely with Farm Credit loans only. I would have to imagine that there are a few cattle feeders that would like to have some loan modifications as well. It’s ironic to think that meat supplies are too large when every meat segment has cut back on production a minimum of 2 percent. The beef herd is at a multi-decade low which is leading many to think that beef supplies are in good order. With a smaller cattle supply, we have processed over a million fewer cattle than a year ago. The export markets have been another slow spot for meat producers. The H1N1 “swine flu” craze cost the pork industry a lot of their export markets.
Now, all that excess product must be consumed in the U.S. The industry has been processing over 2 million hogs a week and carcass weights have been going up. They reached a new record slaughter last week with 2.24 million hogs going through processing plants, showing us that they won’t be cutting pork supplies any time soon. Sow liquidation has been pretty poor and needs to be accelerated to get their supply situation in order. Sow slaughter is 11 percent below last year’s level when it should be up 11 percent to adjust to pork demand.
The dairy industry started another cow buyout last week, clearing another 85,000 dairy cows. It looks like the Cooperatives Working Together may continue to buy out dairy cows as their cash flow permits. It could be a few more months before the dairy guys get their inventory problems straightened out. But the up side for beef producers is much lower hay and feed costs as supplies increase.
If we can get pork supplies cleared out, the dairy buyouts complete, meat exports back on track, and a bit more consumer confidence, the beef industry will find some better days ahead. I wouldn’t expect to see all this happen in the next 120 days. But, let’s assume all this did happen, this fed cattle market could turn around pretty fast. — PETE CROW