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Weighing The Market

published: December 16th 2016
by: Wes and Sharla Ishmael

Cattle markets boost year-end optimism

Higher calf and feeder cattle prices finally nudged open the marketing gate with the heaviest auction receipts of the fall showing up in late November. Despite a break in the nascent rally the first full week of December, expectations are for seasonal price support through the rest of the winter.

The same market rally from October’s abysmal lows also widened prices across weights.

“Those who kept their calves to hold them over the winter or bought stockers might pay very close attention to these calf market developments,” says David Anderson, Exten-sion economist with Texas A&M AgriLife Extension Service, in a recent issue of In the Cattle Markets. “The widening slide might provide some new opportunities. It’s likely to re-main important to plan now for marketing feeder cattle in the spring.”

“Producers that are backgrounding their own calves or buying calves now for winter grazing programs need to remember that the calf crop is larger. Even though cattle placed into feedyards during both September and October were below a year ago, animals held back will need to be marketed down the road,” say analysts with the Livestock marketing Infor-mation Center (LMIC), in the Livestock Monitor. “Make precise cost of gain calculations and be prepared to use risk management tools. As we have seen over the last few months, prices can change rather quickly, and therefore price spreads between calves and yearlings can change quickly, so monitor markets closely.”

Similarly, analysts with the Agricultural Marketing Service (AMS) point out slaughter cow prices are following the seasonal trend downward.

“Market watchers are reporting a considerable number of cows in the wings ready to go to market, however slaughter cow plants are running at full bore with auction markets having to hold cows at their facilities a longer period than normal,” AMS analysts explained December 9. “Usually there is an uptick in cow prices be-tween Christmas and New Year's Day, however with the holidays on Sunday this year, many auctions will have sales.”  

Heading into the New Year

Optimism also stems from growing evidence that markets have made the lion’s share of adjustment to cyclically increasing cattle and beef supplies.

“The transition to bigger beef supplies—and psychologically to the idea of bigger supplies—that be-gan impacting cattle markets in 2015 continued in 2016,” says Derrell Peel, Extension livestock marketing specialist at Oklaho-ma State University. In his weekly market comments, Peel explains, “Markets adjusted down, including a brutal, fear-driven crash in markets in the third quarter, followed by a significant rally in the fourth quarter. Fed cattle prices recovered 12-15% since mid-October, while feeder cattle are up 10-12%. Calf prices increased about 25% since the October lows.” 

Although beef cow slaughter was about 13.4% higher year over year, and heifer slaughter was running 3.5%, with sharply higher heifer slaughter rates in the second half of the year, Peel explains, “The 2016 net herd culling rate is projected at less than 8.5%, less than average and consistent with modest herd growth for the year.”

“The beginning of 2017 brings with it several market dynamics that have not been witnessed in several years,” Griffith says in his early-December market comments. “Calf and feeder cattle prices will be at their lowest level to start January since 2011. Cattle inventory will increase for the third consecutive year, which has not happened since the 2005-2007 time period. Cattle inventory will likely be at its highest level since 2010.”

On the other hand, beef imports continue lower as U.S. beef exports continue to pick up steam.

U.S Beef export volume in October (the most re-cent data available) was 12% higher than last year, according to statistics re-leased by USDA and compiled by the U.S. Meat Export Federation (US MEF). Beef export value for the month was 10% more at $559.5 million.

Export value per head of fed cattle slaughter averaged $269.35 in October, up 5% year over year. Through the first 10 months of 2016, export value averaged $254.71 per head, down 8%.

At a broader level, energy costs appear to be heading higher; at least oil prices. Nearby crude oil futures (CME) rose approximately $5-$6/bbl. during the past month. Although always iffy to bet on, OPEC recently agreed to reduce production in order to bolster prices.

Interest rates will likely increase as the nation’s economy appears to be picking up steam. At least that’s what investors seem to believe, given the prolonged rally since the presidential election.

Griffith adds that the new year will be the first with a new U.S. president in eight years.

“How the markets will react in 2017 and beyond will depend on policy changes, consumer behavior, and producer reaction to market forces,” Griffith explains. “The spring of 2017 is expected to bring a seasonal price tendency with it. Calf and feeder cattle prices generally see a boost in January and then are really supported in March when spring green up begins.”

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