A number of factors in combination have seemingly turned leverage in the feeder market away from the seller toward the buyer. That doesn’t ease the pain with current sales, but does improve the outlook for at least some semblance of relief in the feedyard sector.
In recent years, beef producers have been increasingly incentivized to utilize genetics, establish breeding systems, and implement management strategies to ensure cattle hit higher USDA Quality Grade (QG) targets. Where do see the industry’s QG trend headed in the future?
The payoff of value-added calf programs varies across regions, depending upon local market dynamics, distance from key feeding regions, etc. But would you be willing to give up some marketing independence to receive the rewards of participating in such a program?
Japan’s move to jump start its economy with a $1.4-trillion stimulus could raise the potential for retaliation by its trading partners, including the U.S. beef industry. U.S. beef exports might be hindered because of Japan's stimulus plan.
Feedyard gross margin (fed steer less yearling steer) in 1996 averaged about $350/head, while total yearling steer investment was just slightly over $450/head. That gap has consistently (and unfavorably) widened ever since. Gross margin in 2012 was only about $60-65 more compared to the 1996 mark, but the investment required to obtain that margin has surged nearly 10 times that amount, as yearling steer costs have jumped $665 to average $1,125/head in 2012.
Since 2000, stocker cattle inventories have progressively moved from the northern states to the Southeast. Arkansas, Virginia, Tennessee and Kentucky have captured an additional 207,000 head in that time frame, and account for nearly 85% of the geographic
The success of the super center concept hasn’t gone unnoticed in the food world, and thus explains the format’s domination of growth during the past six years. A number of competitors are increasingly trying to introduce similar formats, including Target and K-Mart, while even traditional grocers are expanding their product offering to more closely mimic the super center concept.
Since December the fed cattle market has consistently outperformed the S&P 500 and is now about 15% ahead of the broader stock market index. It’s somewhat surprising that beef values and fed cattle prices have been able to outpace the broader economy – especially in an era of high unemployment and relatively weak consumer confidence.
The cattle market appears poised to make another run at breaking through overhead resistance at $130+ in the coming months. Once again, the beef complex demonstrates an incredible ability to be resilient and robust even under serious concerns.
Looking at beef cattle feed prices in late 2013, the market is pricing in a significant break for corn prices. Meanwhile, there’s no way to forecast hay costs through futures markets; hence, the most reliable estimate is based on historical relationships.