Market moves on, but ...

Apr 9, 2010

The cash fed cattle market advanced to over $1 this last week, and the futures went up to $99.45. This positive basis should keep cattle moving. This is about as good as it gets. Reports are that feeders are clearing $150-$200 a head on current cattle. While the recent market advances are very welcome, it is still a bit perplexing to watch this thing go so high, so fast. But then again, when an industry reduces inventory, one would generally expect prices to advance. Where it goes from here is anybody’s guess.

The packing industry has been caught short of cattle in order to fill early spring retail orders. Grilling season is just around the corner, which also typically brings larger processing volumes. Perhaps consumer demand is increasing, but at some point, consumers will pull back if retail prices get too high. But, then again, hog and poultry prices are also very high, so there may not be as much resistance from consumers to the higher beef prices.

A high tide raises all boats, but ironically, most of these higher cattle prices haven’t been passed on to the consumer yet. Let’s just hope that they don’t get sticker shock when they check out the strip steaks or the tri-tips.

The boxed beef cutout value seems to be stuck at $164 and load counts have been relatively low for awhile. The cutout is going to have to find a stable mark at this level or higher to sustain $1 fed cattle. Last week, packers’ breakeven on cattle was around $100 per cwt., against a $96 cattle purchase, giving them a profit of about $52 per head. I would have to imagine that their margin will evaporate this week unless they can get the cutout higher.

August feeders rallied to $114.40, which seems kind of dangerous for cattle feeders, but good for the guys taking calves to grass, if they already had them purchased. Light calf prices may thwart plans for many cattlemen who were planning to take some extra grass cattle on as this spring looks to be a great grass season in most of the country. An option contract might be good insurance for fall-delivered yearlings.

It looks like the U.S. Trade Representative’s office and USDA may have thrown the beef industry under the bus in order to resolve a Brazilian cotton dispute that has gone on for awhile.

They are talking about allowing fresh beef from Santa Catarina into the U.S. market. This makes me a little uneasy since Brazil had a foot-and-mouth disease (FMD) outbreak about five years ago. Santa Catarina holds a very small portion of the Brazilian cow herd, only about 1.9 percent. And we don’t even know if there is a packing plant there, but if we open up our markets to beef from that state, it’s a good bet one will be built quickly.

USDA said last week that they will start the rule-making process April 16. USDA will publish a proposed rule declaring the state of Santa Catarina free of FMD, Rinderpest, and several varieties of swine fever, according to World Animal Health Organization guidelines. They will also begin to evaluate and identify appropriate risk mitigation measures to determine whether fresh beef can be imported from Brazil without introducing FMD to the U.S.

For the most part, this research has already been done. The risk evaluation for importing fresh beef from Brazil was completed five years ago and suggests the beef is safe. This also would support the regionalization of FMD-free zones in Brazil, a status which they have been seeking for quite some time. The National Pork Producers Council has been through the research and endorsed the idea of the FMD-free status for Santa Catarina. However, the U.S. beef industry isn’t so eager to sign off on the deal and probably won’t. I imagine that hogs in a confinement operation would be much safer from the introduction of FMD than free-range cattle. So this is like comparing apples to oranges.

The word is that USDA is working on another proposal that would allow fresh beef imports from other Brazilian states which are declared FMD-free with vaccination. I remember when England had their last FMD outbreak; they got it from meat illegally imported into the country. It quickly found its way into farm country through restaurant waste fed to hogs.

It is way out of line for the U.S. to even consider importing fresh meat from Brazil until the entire continent is free of FMD. This is a risk to the cattle industry that we just don’t need to take. — PETE CROW