Thursday, March 17, 2011
Cattle Prices: Will Records Continue To Be Broken?
Visiting with a cattleman in the cardiac unit of the local hospital recently, he said he was concerned that he was not going to make any money because the high price of corn. When I suggested his markets were going up in concert with the corn market, he acknowledged he was still making a profit. While the Japanese tragedy has taken $6-7 off the top of the live hog and fed cattle markets, that 6% is less than the 10% it has taken off the corn market since Friday. While livestock need feed, will livestock prices continue their upward trend?
Fed cattle are being sold for a record price, and just like land prices and home runs, records are meant to be broken. That is the contention of University of Nebraska economist Darrel Mark. His recent analysis is that cattle will remain a bullish market. While the past several days have seen a $6 pull back because the Japanese market may be on pause briefly, the $117.89 average in the cash market and the $117.65 for live cattle futures on Thursday were record prices. The cash market climbed over $5 in a week after taking out the prior record that had been there since the brief 2003 window between the Canadian and US problems with BSE. Cattle futures broke the 2008 record of $103. The BSE scare was the last great high in the price of boxed beef until the past week when prices were again at that level.
Darrel Mark rhetorically asks why prices have climbed to the levels they have and is there octane to power them continually upward. The first answer is due to the declining supplies of cattle which are at the lowest numbers in the past 50+ years. Weights are more than they were in 1950, but while your T-bone steak may be larger, there is only a finite number of them. And he adds that while there are more cattle in feed lots than in the recent past, many were light in weight and were put there earlier than would have been expected, and won’t be marketable until later than would be expected.
With fewer cattle, heavier cattle, more in feedlots, but on a slow schedule, what is the outlook for prices? Mark says prices may go higher yet this spring, and he does not think the peak has yet been reached, “In only three years out of the last nineteen has the fed cattle market posted its high sometime in March. In eight of those nineteen years, the high was posted in April, with the second week of April being the most common week for the high.” But he hints that you should pay close attention because the average increase in price from mid-March to mid-April is only $1.
Darrel Mark also says watch the trend on cattle weights, which have been erratic, possibly a result of the winter weather that interrupted feed schedules, stress, and other factors that will impact rate of gain. He says lower weights mean that packers have to kill more head to get the beef tonnage needed to meet consumer demand.
With a strong demand for feedlot placements, prices for feeder cattle have also climbed. Feeder cattle futures posted a record high last Wednesday at $132.20/cwt taking out the “old” record of $119.47/cwt on September 6, 2007. Mark is expecting Friday’s Cattle on Feed report to show a 2% increase for February placements. With the nearly 70-cent drop in the corn market over the past week from the unsettled Middle East to the Japanese Earthquake, Tsunami, and radiation, cowboys are relieved that feed costs are taking a breather, even though cattle prices have also lost some ground due to a pause in the Japanese demand. Based on $6.50 corn and wet distillers’ grain at $68/ton, the feed cost is about $102/cwt. Mark says some feeder still with fall corn will be making more money and feeders who are now buying new corn are making much less margin. That price may be in the red, but Darrel Mark says it would only take a $3 increase in August or October futures to climb into the black. (And his calculation uses higher priced corn.)
Summary:
Prices for cattle continue higher because of declining supplies and increasing foreign and domestic demand. However, prices may not have peaked yet for the spring because spring cycle highs usually occur from mid-April onward. So far record prices have been reached for both cattle futures and cash cattle, as well as feeder calves, but corn prices have faded, relieving some of the feed cost pressure for producers.
Posted by Stu Ellis on 03/17 at 12:23 AM | Permalink