Bright spots

Feb 19, 2010

Cattle markets have been robust over the past few weeks; fed cattle should get close to $89-90 this week which is good news for many cattle feeders. However, I am sure they don’t like paying over $1 for feeder cattle again. Some of the cattle they placed from October through December should be making a few bucks.

Feeder cattle have really lit up. If you’re looking at summer grazing, you should keep your eye on the August feeder cattle contract which is over $105. Last week, feeder and fed cattle contracts were all up and corn was up with them. This is one of those times when the futures market is showing us just how volatile prices can be.

Cattle inventory was 1 percent lower than a year ago and there are a lot of folks thinking that we’re going to be short of cattle in the future. I’m not so sure I would be gung-ho on increasing cow numbers unless you can hold down your incremental costs while carrying those extra cows. But judging by the market for bred females, it looks like there is good interest in adding some numbers. Good quality bred heifers appear to be trading in the $1,000-1,300 range and they are getting a little hard to find. Same with bred cows.

Speaking of cows, there was a comment made at last week’s National Meat Association meeting by Al Almanza, an undersecretary for Food Safety and Inspection Service (FSIS). He said that meat processors need to assess whether the risks associated with buying and processing animals that pose food safety risks are worth the cost savings. He indicated that, somehow, older cows pose a greater risk to food safety.

Tyson’s food safety guy, Dean Danilson, asked him if he was suggesting that FSIS might treat riskier animals similarly to the way the poultry industry treats spent hens—diverting them for use in canned or cooked end product. Alamanza said, "You’re on the right track."

Alamanza continued, saying, "We know there is value for that product, but is there really value in the way to produce it in a raw product where it’s posing a greater risk to public health and your brand?"

It appears that FSIS may have been testing the water, floating the dialog about the use of processing older cows for fresh product to gauge the industry’s response, which is an alarming thought. If an initiative such as this were to advance, it would pull the rug out from under the slaughter cow market.

I wouldn’t pull the fire alarm on this just yet. It seems it might just have been a tidbit thrown out at a round table discussion, but I thought you ought to know. This will be an item we’ll be watching.

It’s hard to forecast this market. Beef cutout values rose sharply last week on reduced slaughter, and distribution of beef was slow due to winter weather. Marketings for January are projected to be good ahead of the next Cattle on Feed report. Most estimates are for numbers to be 100 percent of last year’s levels with one fewer marketing day. Feeder cattle placements are expected to be about 5 percent lower and on feed numbers 3 percent lower. The February report looks friendly going into the spring. In about 60 days, we’ll be looking at the front end of the grilling season, which typically brings better demand and increases beef production.

Consumer demand still seems lower than it should be. During 2009, beef demand was 10 percent lower that it was in 2008 and I don’t see much changing for this coming year. Ironically, chucks and rounds are selling at a higher average price than a year ago. But loins and ribs are much lower, which is a reflection of what’s going on in the restaurant business. That sector is starting to show signs of life, but it’s still expected to be slow this year.

Exports have been a real bright spot for the market. It is still a small market in relation to the domestic market, about 8 percent, however, it is growing slowly. Exports for January were 20 percent higher than a year ago. Mexico is by far our largest export customer and Canada is right behind. Japan was up 38 percent from a year ago during December, but we still have a long way to go to get it where it once was. The export market is expected to see modest growth this year.

The market is what it is, at any given time, and I’d have to say it’s a good time to be on the selling side, especially when there is a great hedging opportunity for summer feeder cattle. — PETE CROW