Summer markets

Opinion
May 2, 2014

Cattle markets remain strong with Mother’s Day and Memorial Day just around the corner. You can see packers gearing up to get more beef on the market. Cash fed cattle were trading at $148 last week and the beef cutout value is showing stability in the $130 range.

 

The Cattle on Feed report was bullish news for cattle markets going into summer. It appears that the summer lull may not be as tough on cattle markets as it has been in the past. April live cattle will drop off the board at $145.82 but the next nearby contract is June, which is trading at $137.20 and August is at $136.10, showing a fairly normal seasonal decline. Yet, it is illustrating softer markets ahead.

But with a strong positive cash basis we could see those contracts get a little stronger and the positive basis should keep live cattle marketing strong. The last Cattle on Feed report showed that there were 622,000 fewer cattle on feed April 1 than last year and cattle placements into feed yards were down 4.7 percent, far fewer than market analysts expected.

Feeder cattle futures markets were on fire last week with all contracts reaching new highs. Just when you think there is nothing left, the feeders jump another $5. The August contract was at $190.45 last Thursday.

According to Andy Gottschalk at Hedgers Edge, “Feeder and calf supply outside feedyards is calculated at 18.388 million head, down 971,000 head from year ago levels. The reduction in year to year supplies should lead to lower feedyard placements over the next few months. Cash feeders should trade steady to higher into late August. The hazards to such an advance are: weather conditions leading to a sharp advance in feed grain prices and/ or a sharper than expected decline in fed cattle prices this summer. Also, ‘funny money’ remains committed to the long side of this market.”

There are roughly 14 million head of feedlot capacity in this country and 10.860 million head of cattle already in feedlots, and the supply estimates for feeders and calves going forward is 18.4 million head. Feeders simply have far fewer head to choose from and that creates huge competition for your calves and yearlings.

Meyer and Steiner at the Daily Livestock Report say, “At this point it appears feedlots are running against the reality of overall tight feeder supplies, as evidenced by nearby feeder futures near all-time record highs. But a smaller calf crop is not the only concern for feedlots at this point. Record cattle prices have further added to the impetus among cow/ calf operators to try and hold back heifers.”

“The reduction in heifer placements has been the primary driver for the decline in cattle slaughter so far. Placements of heifers into feedlots during the first quarter were 3.7 million head, 5.9 percent smaller than a year ago. The main challenge to herd rebuilding over the past three years has been the weather. Heifer retention has been higher in 2012 and 2013 and year total cattle numbers have declined as drought conditions have forced producers to continue to cull the beef cow herd,” Meyer and Steiner wrote.

Also last week the government announced that our economy grew by only one-tenth of a percent which was a disappointment to most economists. But it is a comfort to know that beef demand has remained strong with such a lagging economy. Market watchers are all very surprised that beef prices and demand have stayed as strong as they have through this sluggish economy. The National Restaurant Association’s Performance Index was up a full point in March to 101.4, indicating more folks are eating out. The expectations portion of their index touched its highest level since 2012—102.0—indicating restaurant chains’ willingness to expand their operations.

This is going to be an interesting summer market; we’re walking into our better demand seasons and slaughter levels are picking up. The supply of fed cattle appears to be very manageable through summer, perhaps better than most market watchers were predicting. The supply of feeder cattle is low and we found a new high in the feeder cattle markets last week. I would feel pretty confident that we’ll have a solid market throughout summer. — PETE CROW

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