Calves and feeders remain strong

Opinion
Aug 30, 2013

It’s been quite a summer for calves and feeder cattle. The market took off in June and hasn’t looked back. Ever smaller supplies of feeding cattle have forced cattle feeders to dig deep into their pockets if they want to keep their yards operating efficiently.

The most recent Cattle on Feed report showed that on feed numbers were down 5.9 percent from a year ago which represents the largest decline from July to August since 2008. California was the only state to show any increase in cattle on feed. The economics of feeding cattle has been a tough proposition over the past year. Cattle feeders seemed to have the feeder cattle market working in their favor in May and June but the prospects of ample and lower cost feed forced them to pay up for feeder cattle. This produced a summer rally that hasn’t slowed down, and doesn’t appear that it will coming into the traditional fall runs.

However, the number of cattle placed on feed during July was 11.4 percent lower than a year ago which will keep the supply side of the market in good shape for the balance of this year. Market analysts are expecting August placements to be even lower with some estimates of 18 percent lower than a year ago.

According to Steve Meyer and Len Steiner at the Daily Livestock Report, the recent cattle on feed report is bullish on every account. They said “on-feed numbers were 1.7 percent lower than the analysts’ average guess and that means there were about 180,000 fewer cattle on hand than was expected on August 1. And it also means that feedlot inventories are more than 600,000 head below year ago levels.”

I suppose you can say now that we’re starting to run low on cattle.

Feeder cattle prices have been on a major league run this summer showing over a $24.00 rise in values as indicated by the CME feeder cattle index.

Cattle feeders want those heavy summer yearlings if they can find them and they are getting tougher to locate. With the feeder cattle futures showing more strength on values in the differed months, August was at $155.05 last Thursday while November feeders were at $158.77. Hanging on to them may make you a couple dollars more if you’re one of those ranchers who received good August moisture.

Meyer and Steiner also said, “even though lightweight placements were down more than heavy weight placements on a year-on-year-basis, the average placement weight dropped by over 11 pounds from June to 723.7 lbs. that average is still 1.4 percent higher than last year and 1.5 percent higher than the 2008-2012 average for July. It also marks the sixth time this year that average placement weights have record-large for the respective month. The incentive to add pounds outside of feedlots is still strong.”

The CME feeder cattle index on May 30 was at $130.81, this may be the greatest summer rally ever on feeder cattle prices the index was at $155.25 a gain of $24.44 cwt. Cattle feeders have been aggressive buyers this summer, but also selective buyers.

The trade off in lower corn and feed prices and higher feeder cattle prices still has cattle feeders looking at very thin margins if any at all. Breakevens on cattle placed last week are in the neighborhood of $135.00, and there’s no hedge in sight.

Fed cattle marketing for July was 4.5 percent above last year’s level with one extra day of trading, so marketings were about equal with a year ago. Beef production for the year is running just 1 percent below a year ago with only 1.5 percent fewer cattle going through the slaughter house.

Beef production is expected to decline for a while as the industry transitions out of using the growth enhancing product Zilmax. It is estimated that will cost the industry 1.5 percent in reduced production, or somewhere around a half a billion pounds. However, it is also expected that feeders will keep cattle on feed longer to make up for the lost Zilmax production. During this transition we can expect a decline in carcass weights.

 

The Zilmax issue came and went without much fanfare. Merck did the right thing taking the product off the market. If the national media got a hold of this story and reported it with their usual sensationalism, the industry could have had a real problem on its hands. Taking the high road is always the best route on a sensitive issue like this. — PETE CROW

 

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