Quality still pays

Mar 22, 2013

Cattle feeders are finding a little relief these days with feeder cattle prices much lower than a year ago. All classes of feeder cattle are down nearly $20/ cwt., which should give cattle feeders a chance to earn back some of their equity that has been lost over the past year. When you stop and think about it, feeder cattle prices did get a little ahead of themselves. But you can blame the cattle feeders for bidding them up so high in the first place.

Feeder cattle prices have been in a nose dive since the first of the year; but, with much lower cattle numbers, it certainly can’t last for long.

Steve Meyer at CME Group said that, “The selloff in live cattle futures certainly cooled interest in placing cattle in February, and has continued that pattern so far in March. Add in the prospect of very tight grain supplies and the potential for explosive prices and one can see quickly why placements would fall. Plus, the feeder cattle supply is still tight. With little feeding margin available, feeders have had to be pretty disciplined and analysts expect that to show up in lower placement numbers [in the next cattle on feed report].”

The average analysts guess on placements was 91 percent of a year ago.

The next Cattle on Feed report was expected to show cattle on feed down nearly 7 percent from last February and marketing’s a disappointing 9 percent below last year. The supply of fed cattle is in good shape, but demand always trumps supply at the end of the day. Cattle feeders have, without a doubt, lost enough equity that they are backing away from the table when it comes to buying feeder cattle. The cost of gain for many feeders is over $1.30 a pound and Southern plains feeders are even higher.

This feeder cattle market should get some relief this spring and we’re praying for spring rains. But we’re coming into the higher demand time of the year and hopefully we’ll crack that elusive $200 cutout value barrier and be back off to the races.

Andy Gottschalk at Hedgersedge.com said that, “Cash prices are consolidating in a pattern that we view as necessary to attempt to break through price resistance at $128-$130. We remain optimistic that, as seasonal demand improvement occurs and fed cattle supplies decline in the second quarter, new cash highs will be attained. Supplies currently project to tighten dramatically into the early summer, with continuing light placements doing little to reverse this trend or these expectations. This should allow for higher cash markets and should allow choice beef cutout values to breach the $200 barrier.”

Consumer demand has been a real problem for the cattle markets and beef sales. The packing industry has slowed production lines down enough that they were able to get the beef cutout values higher over the past couple weeks.

The choice cutout topped out at $196.75 last week for the highest weekly average since last October according to Steve Meyer at the CME Group. He said it is just short of the record levels reached in February 2012 and again last summer.

“Some analysts believe $2/lb. is a huge psychological barrier to this market and the historical data supports that point of view. How many people will pay retail beef prices commensurate with $2 Choice Beef? We think the answer is ‘Not as many as will buy cheaper beef, but FAR more than zero!’ And we are just now reaching the marketing window for cattle placed in September, the shortest of those short placement months last fall.”

Even though cattle feeders have been losing money on cattle the past year, not all cattle are losing money. Quality pays, and that is one thing cattle feeders want more of, cattle that will perform and keep gaining weight and also have a quality carcass. We talk a lot about average prices in our market story each week, but when you really dissect those market reports or feedlot close out statements, you really see where the value is in your herd. Producers that pay attention to their genetics and produce cattle that will yield and have a premium marbling score are bringing good prices on some of the packer grids. There is good demand for quality beef. Just as there is demand for quality bulls and females in the cow calf herd and quality feeder cattle; quality always pays.— PETE CROW