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Weighing The Market

published: October 16th 2020
by: Wes Ishmael

Calf and feeder cattle prices are higher so far this fall than many anticipated a few months ago, but increased marketing volume and dry conditions are adding pressure.
    According to the U.S. Drought Monitor,  62.9% of the continental United States was classified from abnormally dry to exceptional drought (Oct. 6) —including wide swaths of wheat pasture country. That was 26% more than the same time last year.
    “With larger fall runs of calves expected in October and November, the lack of wheat pasture demand may add additional seasonal pressure to calf markets this fall,” explained Derrell Peel, Extension livestock marketing specialist at Oklahoma State Univer-sity, in his early October market comments. He added, the lack of wheat pasture and other forages may change the timing of calf and feeder cattle sales this fall.
    Beyond forage availability to grow cattle, drought is pushing cows to town in some areas, according to USDA’s Agricultural Marketing Service (AMS).
    “The question moving forward will be how many cows will leave the farm and go to harvest with a rancher exposed to paying more to keep cows around this winter than in the past,” say AMS analysts.
    Recent data continues pointing to higher feed costs than expected just a few weeks ago.
    Analysts with USDA’s Economic Research Ser-vice (ERS) increased the season- average price for new-crop corn by 10¢ to $3.60/bu., in the latest monthly World Agricul-tural Supply and Demand Estimates (WASDE). That was based on revising harvested area and yield expectations lower. Be-tween Sept. 28 and Oct. 9, Corn futures increased an average of 24¢ through the front six contracts.
    During the same two weeks, Soybean futures closed an average of 31¢ higher through the front six contracts, aided by strong recent exports.
    Looking further ahead, cattle prices should gain some cyclical support, based in part on expectations that beef production will peak this year.
    Glynn Tonsor, agricultural economist at Kansas State University (KSU) offered price projections from the Livestock Mar-keting Information Center (LMIC) during his Market Outlook at the recent KSU Beef Stocker Field Day. Prices that follow are basis the Southern Plains.
    500-600 lb. steer calves: $156-$158/cwt. (fourth quarter); $163-$168 (first-quarter 2021); $169-$175 (second quarter); $167-$171 for the year. For 2022, the annual estimate is $175-$185.
    700-800 lb. feeder steer: $141-$144/cwt. (fourth quarter); $141-$145 (first-quarter 2021); $142-$148 (second quarter); $148-$152 for the year. For 2022, the annual estimate is $152-$162.
    “In the event the macroeconomic environment im-proves beyond what’s built into these forecasts, I could build an argument for better prices yet,” Tonsor says. “I think there are reasons for optimism that global demand will rebound, but that will hinge on global economic conditions and geopolitical relations.”
Fed cattle prices
 continue rise
    Starting the third week of September, negotiated cash fed cattle prices continued to increase to within spitting distance of year-ago levels as cattle feeders appeared to move beyond the worst of the backlog in cattle caused by pandemic packing disruptions. The five-area direct average fed steer price was $107.12/cwt. the first week of October.
    “Prices are about $13/cwt. higher than their summer lows and will likely continue to slowly increase into late fall as the holiday season approaches,” ex-plained Andrew P. Griffith, agricultural economist at the University of Ten-nessee, in his early October market comments. “The fourth-quarter peak price is still expected to exceed $115 with an upper range near $120. It will be tough to reach the $120 mark, but most cattle feeders will be profitable with prices over $115. One major factor that could temper prices in the fourth quarter is a glut of cattle coming off feed in the next 10 to 12 weeks.”
    The latest WASDE increased projected fed cattle prices for this year and next. Specifically, ERS increased the 2020 annual average price (five-area direct) by $1.41 to $108.71/cwt., compared to the previous month, with a fourth-quarter price projection of $109. That’s based on current price strength and robust beef demand.
    ERS forecast the annual average fed steer price for 2021 by $2 higher at $114. Prices are projected to be $113 in the first quarter, $110 in the second quarter and $114 in the third quarter.
    By contrast, according to projections Tonsor shared, LMIC forecasts the fourth-quarter fed steer price at $108-$110; $113-$118 (first-quarter 2021); $116-$122 (second quarter); $117-$120 for the year. For 2022, the annual estimate is $119-$129.
    Keep in mind this price strength comes in the face of increasing beef production.
    ERS projects beef production in 2021 to be 227 million lbs. more than this year at 27.37 billion lbs.
    Rebounding U.S. beef exports should help.
    Beef muscle cut exports in August were the largest in more than a year at 89,148 metric tons (mt), up 3.5% year-over-year, led by record-large demand in South Korea and Taiwan, according to data compiled by the U.S. Meat Export Federation (USMEF). Export value increased slightly from a year ago to $611 million.
    Variety meat exports were lower year over year, though, due in part to the lack of available labor required to harvest and export some items.
    Combined beef/beef variety meat exports were 109,752 mt in August, down 4.5% from a year ago. Export value was $673.8 million, down 2% from a year ago but the highest since March.
    For January through August, beef muscle cut exports were 6% below last year's pace in volume (627,248 mt) and 9% lower in value ($4.38 billion). Beef/beef variety meat exports were down 8% to 808,659 mt, valued at $4.95 billion (down 9%).
    “The upward trend in muscle cut exports is very encouraging and especially critical as beef and pork production continue to rebound from the interruptions earlier in the year,” says Dan Halstrom, USMEF president and CEO. “Maintaining variety meat volumes has been especially challenging this year but we continue to expand and develop destinations for these items, which are essential to maximizing carcass value.”
    Beef export value per head of fed slaughter averaged $302.82 in August, up 1% from a year ago. The January-August average was down 4% to $297.96.

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