Heading into summer, analysts with the Livestock Marketing Information Center say cattle feeding profits will be challenged by seasonal declines in fed cattle prices and the pricy breakevens purchased with record-high calf and feeder cattle prices.
“Looming prospects for poor forage conditions could result in counter-seasonal increases in cow culling in coming weeks, much as happened last year in the first half of the year," says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University. "Another 2-4 weeks of delay will limit summer grazing demand and may force some producers to move defensively to ensure forage demands can be met.”
“Ten days ago, packers were short bought and now they're not,” John Otte, Penton market analyst, explained Friday. “That means they don’t need to chase supplies. That's letting cash fed cattle prices drift lower, which pressures fed cattle futures.”
The estimated acreage for corn to be planted this year was about 1 million acres less than pre-report estimates. Some analysts believe the USDA figure is too light and that there could be more downside price risk to corn.
Current weather outlooks expect drought to persist into the summer from southwest Kansas to areas south and west. “An El Niño is forecast to develop this summer or fall, which will likely bring some relief to much of this region but perhaps not soon enough to avoid additional liquidation in the first half of 2014,” says Derrell Peel, Extension livestock marketing specilist at Oklahoma State University.
Tumbling wholesale beef values pressured cattle markets this week. On the one hand, declining wholesale beef values point to tougher sledding with consumers, especially as more volume enters the market. On the other hand, spot Live Cattle futures continue to offer cash support to fed cattle.
Although demand for calves and feeders should soften as orders are filled, AMS analysts note, “Many market watchers feel there is still some fuel left in these rockets with available supplies of feeders seasonally tightening and ample on-farm feed storage.”
“In the U.S., we see the outbreak of PEDv causing a significant shortfall in the availability of market hogs in 2014 – to the tune of 12.5 million hogs or 11% of annual slaughter,” says William Sawyer, a Rabobank analyst.
"If herd expansion plans move forward on adequate or better forage conditions, cull cow prices will likely stay above $90/cwt. for the remainder of the year and average in the mid $90s or higher,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University.
“Many backgrounders are facing the realization that they are going to run out of money before their pastures are filled, with stocker cattle prices roughly 25% higher than last year,” AMS analysts say. “Cattle growers may be afforded a rare opportunity to lease pastures in the major grazing areas (like the Flint Hills of Kansas) as grazers start to scale back the number of head they turn out, either due to a lack of capital or a lack of nerve.”