Markets improve

Opinion
Oct 23, 2009

Cattle markets have improved a bit over the past two weeks and some segments of the beef industry are moving along very well.

The fall bull sales around the country have been stronger than many of us expected and most averages are coming in between $2,500 and $3,000. Granted, there appear to be fewer bulls on the market this fall, but demand has been good for breeding stock.

Our friends on the West Coast are starting to get good rains which are more than welcome after three years of excessively dry weather. I was in Texas last week and this may be one of the best falls they have ever had for moisture and grass. It was perhaps the greenest I have ever seen it.

Cattle markets are getting stronger. The fed cattle contract moved over $86 last week and cash fed cattle were expected to trade cattle in the $85 range. It appears that most of the heavyweight cattle in the northern Corn Belt have moved and show lists have become more current.

The USDA carcass grading report showed last week that Nebraska feeders were producing 67 percent Choice product compared to southern Plains feeders only producing 44 percent Choice. Yield grades have also gone up, with over 10 percent of the cattle finding a home in the Yield grade 4 category. Remember that old adage, heavy in heavy out?

The corn market has run over $4 on the December contract; an early freeze and wet weather has made a mess of the corn harvest. USDA estimates that we will see a crop over 13 billion bushels. It seems odd to have a huge crop and a strong market, but much of the corn is not up to par. Cattle feeders have an opportunity to buy a lot of high-moisture corn at a good discount. This event could make feeding your calves worthwhile; yardage at many feed yards is on sale, too.

The Cattle on Feed report for Oct. 1 came out two weeks ago and showed that cattle on feed numbers were up just 0.6 of a percent. Placements were up 4.7 percent with most of the September placements under 799 pounds. It would appear that most of the big yearlings are gone. Marketings were down 4.6 percent from a year ago, however, according to Andy Gottschalk at Hedgersedge.com, the positive note on marketings is that the marketing rate calculates at 17.7 percent, which is above the previous five-year average. He also advises feeders to market cattle aggressively. If they don’t, it could create a large backlog of cattle from week to week and hurt the premiums shown in the spring market.

Gottschalk also said in his last Situation and Outlook report that the Oct. 1 feeder and calf supply outside feed yards is down 552,000 head from year-ago levels. “From a historical perspective, the feeder and calf supply outside feed yards remains historically low. Given the severity of losses that have accrued to the fed cattle sector, credit availability will be a critical factor in determining the extent of any price discovery,” he noted.

The supply side appears to be in good order, however, Gottschalk also said that “Given the recent decline in cash and beef cutout values, retail beef margins are maximized. This event should lead to additional beef features in the coming weeks. “In other words, retailers are making good money on beef.” The dominate price-limiting factor to any advance in the cash or beef cutout remains the consumer and their willingness and/or ability to purchase beef.” Consumer demand was down 7.4 percent in the third quarter this year.

On another note, the dairy industry just secured a nice bailout package from the feds worth $350 million, $60 million for product purchase that will go to food banks and other food aid programs. Then there is the $290 million that will go for direct payments to dairy farmers. USDA must go through their decision-making process to determine how that money will be handed over to dairy farmers.

In the beef cattle industry, there seems to be an unspoken rule about asking the government for direct bail-out help. You just don’t do it. The reason is because if you do, you will have the government involved in your business. I would be relatively certain that the cattle feeding industry has lost more money over the past five years than the dairy industry.
PETE CROW

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