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Weighing The Market

published: April 19th 2019
by: Wes and Sharla Ishmael

Calf-Feeder prices gain traction

Even though the long, wet, cold winter continued to snarl marketing and forage growth in some parts of the country, calf and feeder cattle demand finally found some spark beginning the latter half of March. 

More specifically, starting the third week of March, weighted average regional calf and feeder cattle prices were even or higher year over for the first time since early October. 

“Lightweight feeder cattle prices have yet to confirm a seasonal price peak and may hold steady or even push slightly higher in the next two to three weeks,” explained Derrell Peel, Extension livestock marketing specialist at Oklahoma State Unive-rsity, in his mid-April market comments. “In Okla-homa, 5-weight steer prices typically drop roughly 7% between the spring peak into July and another 4% to fall lows in October.  Large frame, number one steers (500 lbs.) are currently priced about $186/cwt., suggesting an October low price of roughly $166/cwt.

As for feeder steers (7-weight to 8-weight), Peel says they typically increase to a peak in July before declining in the second half of the year.

“Current steer prices are roughly $148/cwt. (750 lbs., Large #1), suggesting a peak July price of roughly $153 and an October price near $148,” Peel says. “Futures markets are more optimistic than that for feeder markets with current Feeder Cattle futures prices for the summer and fall well above these levels. This may provide a pricing opportunity for summer or fall feeder sales.”

Lingering weather im-pacts could even provide one more seasonal surge to cash fed cattle prices, Peel says.

The average dressed steer weight was 7 lbs. lighter than a year earlier at 865 lbs. for the week ending Mar. 31, according to USDA’s Actual Slaughter Under Federal Inspection report. The average dres-sed heifer weight was 8 lbs. lighter at 806 lbs. 

For February, federally inspected slaughter of 2.45 million head was 1.56% more year over year, according to the monthly Livestock Slaughter report. Average dressed steer weights were 6 lbs. less than a year earlier at 879 lbs. Average dressed heifer weights were 11 lbs. less at 819 lbs. 

“Normal seasonality of fed prices indicates that fed prices will likely drop to +/- $120/cwt. for fall lows,” Peel says. 

The latest World Agri-cultural Supply and De-mand Estimates (WASDE) project the 5-area Direct fed steer price at $122-$126/cwt. in the second quarter; $111-$119 in the third and $109-$119 in the fourth.

Pork promise

If recently surging and volatile Lean Hog futures prices are any indication, then more beef price support could emerge based on expectations of im-proved international pork demand, stemming from African Swine Fever in China and Southeast Asia.

Rabobank expects Chi-nese pork production losses of 25% to 35% this year. Analysts there note the loss is at least 30% larger than annual U.S. pork production and nearly as large as Europe’s annual pork supply.

Rabobank also expects production losses to exceed 10% in Vietnam, the world’s fifth largest pork-producing country and a significant supplier to Chi-na.

“African Swine Fever has spread to every pro-vince in mainland China and is now affecting an estimated 150-200 million pigs,” says Christine Mc-Cracken, RaboResearch animal protein analyst. “The expected 30% loss in pork production is un-precedented. These losses cannot easily be replaced by other proteins like chicken, duck and seafood, nor will larger pork imports be able to fully offset the loss.” 

Cull cow prices gain

Along the way, David Anderson, Extension livestock economist at Texas A&M University notes Southern Plains cull cow prices increased 32% from the end of January through the end of March, increasing from about $40/cwt. to $53. During the same time, he says 90%-lean beef prices increased 10% to $218/cwt., while the cow-beef cutout climbed by 7.7%.

“The rally in cow prices has come in the face of historically large slaughter,” Anderson explains, in the latest issue of In the Cattle Markets. “Dairy cow slaughter exceeded 70,000 per week for that last 5 weeks. The 72,700 head sent to market the first week of March was the largest weekly dairy cow slaughter since 1986. Some readers might remember the Dairy Herd Buyout program that contributed to large dairy cow slaughter in 1986. Beef cow slaughter dropped below last year's levels by mid-March; 53,000 head compared to 56,000 head this time last year. Total beef and dairy cow slaughter is the most since drought-forced movement in 2012-2013.”

Anderson points out new cow packing capacity in the Northwest is helping boost cull cow prices higher further north than in the Southern Plains, where packing capacity eroded amid the 2010-2012 drought.

“Presumably, dairy cow marketings will decline later in the year as increased culling has an effect on milk production and prices,” Anderson says. “Some milk market recovery should lead to higher milk prices and slower culling rates. The slowing rate of growth of the beef cow herd should slow beef cow marketings. The combination of slowing culling, limiting the growth in supplies, should provide some price support.”

Static numbers

Peering further ahead, analysts with the Livestock Marketing Information Center (LMIC) say the liquidation phase of the current cattle cycle appears to be atypical.

In the latest Livestock Monitor, LMIC analysts explain cyclical herd growth since the 1970’s lasts 5-7 years, with peak numbers usually fewer than the apex of the previous cycle. The liquidation phases usually takes 5-8 years. Currently, they estimate beef cow numbers at the beginning of next year to be about the same as this year; then a negligible reduction.

“Even though cow-calf returns are dramatically below a few years ago, most producers are not faced with financial stress to force substantial breeding herd reductions,” LMIC analysts say. “That is a contrast to most recent cattle cycles. In several areas of the U.S. drought, floods, and/or brutal winter weather has impacted and could continue to ratchet down cowherd numbers. But the economics suggest the most modest cyclical herd downturn since the 1958-67 inventory cycle.”

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