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Weighing The Market

published: June 12th 2020
by: Wes Ishmael

Plenty of COVID-19 uncertainty remains, in-cluding the potential for resurgence and how quickly domestic and global economies recover. Yet, a renewed sense of familiarity returned to cattle markets the past couple of weeks as packing capacity continues to recover.
    In fact, regional average calf and feeder cattle prices for the week ending June 5 were within spitting distance of prior-year levels, the closest since the end of February. That’s according to the National Weekly Feeder and Stocker Cattle Summary.
    “There still remains several unanswered questions in the cattle market moving forward, but price levels for feeder cattle have improved to a point where producers were comfortable marketing some stock,” explained the AMS reporter on hand for that week’s sale at Kingsville Livestock Auction in Missouri.
    As of June 1, from the low point for the year, calf prices (400-500 lbs.) were up about $8 to $170/cwt. and feeder steer prices (700-800 lbs.) were up about $15 to $135, according to Stephen Koontz, agricultural economist at Colorado State University. At the time, the five-area weighted average fed steer price was up about $15 at $115.
    “It's too soon to talk too much about markets re-turning to normal, but the steady improvements associated with the packing industry are a relief,” Koontz explained in the June 1 issues of In the Cattle Markets.
    “Cattle slaughter and beef production decreased on a year-over-year basis for four consecutive weeks. The lowest point occurred the last week of April when total cattle slaughter was down 34.8% year over year. Beef production that same week was down 33.8% compared to the same week one year ago,” said Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his early-June market comments. 
    Since then, cattle harvest increased faster than many expected.
    Total fed cattle slaughter for the week ending May 23 was 444,378 head, which was 51,816 head more (+13.2%) than the previous week and the most since the first week of April, according to USDA’s Actual Slaughter Under Federal Inspection report. Total cattle slaughter of 571,506 head was 52,383 head more (+10.1%) than the prior week and the most since the first week of April. Compared to the prior year, though, fed cattle slaughter was still 14.5% less and total cattle slaughter was 11.6% less.
    “These slaughter numbers will determine when the cattle and beef markets return to more normal relationships,” Koontz says. “There are very large supplies and substantial inventory of long-fed cattle on feed. There has been a steady improvement in fed cattle and feeder cattle prices through last month (May) and into the current. Continued improvement hinges on any further disruptions and steady elevation in slaughter numbers.”
    While cattle futures offer insight to expected price trends, determining near-term fed cattle values remain a sketchy affair. Welcome as they were, the higher prices in May appeared to be higher than fundamentals at the time suggested, with packers providing extra support. At the same time, wholesale beef values were plummeting as beef production increased and as more of the food service sector emerged from quarantine.
    At the end of May, analysts with the Livestock Marketing Information Center (LMIC) expected fourth-quarter calf prices to be similar to last year, with decreased feed costs and higher cull cows in some areas offering the potential for improved year-over-year cow-calf re-turns.
    Although feed supplies are projected to be plentiful overall, including a record-large corn crop, expanding drought will likely dampen the potential for some.
Marketing patterns skewed
    In the meantime, the backlog of market-ready fed cattle grew amid impaired packing capacity and carcass weights increased.
    The average dressed steer weight for the week of May 23 was 894 lbs., which was 6 lbs. lighter than the previous week, but 52 lbs. more than the same week a year earlier. The average dressed heifer weight of 826 lbs. was 5 lbs. less than the previous week, but 41 lbs. heavier than the prior year.
    Saddled to a different horse, feedlot placements in recent months continue significantly less than the previous year as feedlot turnover slows.
    “Feedlot placements for March and April were down a combined 867,000 head from the previous year, suggesting a significant decline in fed marketing, mostly in September and into October,” Peel says. “The delayed placements from March and April will show up starting in May, and will be heavier, but the delay will help feedlots have a chance to get current. The feedlot industry will spend much of the summer working through the backlog of fed cattle but the hole from March and April feedlot placements should provide a marketing window to catch up by this fall if not before.”
Exports continue higher
    Despite the many and varied disruptions wrought by COVID-19, U.S. beef exports are up year over year.
    April beef exports were down 6% from a year ago to 98,613 metric tons (mt), with value falling 11% to $600.9 million, according to data released by USDA and compiled by the U.S. Meat Export Federation (USMEF). For January through April, though, beef exports totaled 433,316 mt, up 5% from a year ago, valued at $2.66 billion (up 3%).
    With lower April slaughter numbers, beef export value per head of fed slaughter climbed to a record $363.35, up 19% from April 2019. For the first four months of the year, per-head export value increased 5% to $326.47.
    “Barring a major setback, it appears that beef markets are moving past the worst of the disruptions that have caused upheaval in recent weeks,” says Peel. “The last few weeks have revealed much about the nature of specialized beef supply chains and much about the variable de-mands for the wide variety of beef products. It has also revealed how market prices adjust to wild swings in beef product demand and supply conditions.”

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