Sep 24, 2010
Bumpy road

Cattle markets were a bit bumpy last week—up one day, down the next.

It would appear that folks are trying to figure out what the corn markets are going to do and what the last Cattle on Feed report meant. By the end of the week, feeder cattle drifted lower and are down $5-7 since the start of September.

The Cattle on Feed report showed that cattle feeders were fairly aggressive on their purchases for August, with placements up 7.4 percent over last year. To put a little perspective on the increased placements, for the year-to-date, they are up 157,000 head over last year, a little over a current day’s slaughter volume that will show up next March and April. Conversely, Canadian feedlots placed 142,000 fewer cattle in August. I suppose from a North American perspective, feeder cattle placements would be about the same as a year ago.

Marketings for the month were up 6.8 percent from a year ago with one extra marketing day. There was quite a bit of beef featuring by retailers going into Labor Day, but the market was moving mostly because of exports, which are up 23 percent so far this year. Exchange rates and global meat demand have been good for the beef industry. Solid global industrial growth has been creating a lot of new beef consumers, even though the U.S. has been lagging in its recovery.

Ironically, fed cattle survived the week in good order. The Cattle on Feed report was considered bearish by analysts, but cash trade started early in the week at $98 live and $155 dressed, maintaining a positive cash basis which should encourage feeders to move current inventories of finished cattle.

Near-term cattle supplies are in good shape and carcass weights are still lower than a year ago. However, they have been rising quickly. The number of cattle on feed for more than 120 days for September was 87 percent below last year and the expectations are that market-ready supplies will grow into the first quarter of 2011, although the volume of cattle on feed for more than 120 days is expected to remain below the five-year average. This number has a bit more meaning in recent years since feedlots have been reluctant to feed many calves after corn prices found a new, higher trading range three years ago.

Right now, the biggest challenge for feeder cattle is the price of corn. We will more than likely see a record corn crop, but USDA dropped yield estimates 2.5 bushels per acre since August, meaning that if expectations are correct, we will likely produce a 13.1 billion bushel crop. Analysts appeared surprised that USDA didn’t make any adjustments for acres harvested, which could have some effect on the market as many believe harvested acres are going to eventually come in lower than current projections.

At this point, about 20 percent of the crop has been harvested and 66 percent of what’s in the bin has been rated good to excellent quality. There have been a few regional comments suggesting that yields have been very uneven and test weights have been lighter than expected. But making whole crop projections from a few reports in September is always dangerous territory.

Steve Meyer, market analyst at the Chicago Mercantile Exchange, pointed out that even though anecdotal reports of lower-than-expected yields have been pretty widespread, we should be a bit careful about self-selecting samples. In other words, there is no reason to worry about what we don’t know for sure.

Meyer did point out that carryover of old crop corn will be the smallest since 1995-96. There wasn’t much of an ethanol business then and corn’s relationship to energy was never factored into the pricing mix, which presents new concerns.

The White House announced a couple weeks ago that ag exports were the shining star in the economy and that their trade efforts have been paying big dividends. I suppose in an election season they have to claim anything they can, but we all know that the government hasn’t done much to help agriculture. Last week, USDA made the comment that the Environmental Protection Agency would more than likely increase the blend rate of ethanol in gasoline up to 15 percent from the current 10 percent. That adjustment will certainly help corn farmers, but won’t do much to help cattle feeders. — PETE CROW