This market has almost universally exceeded everyone’s expectations.
This is historic, folks; there’s no doubt about it. Lean trimmings, fed cattle and boxed beef all set new all-time highs this week. And the futures market, which is now solely led by the cash market, reluctantly has been following suit and pulling us into unchartered territory. This week, feeder cattle added $3 to $4.
It’s not that anyone doubts the tight supplies or was predicting a downturn in prices, but this market has almost universally exceeded everyone’s expectations. Who would have believed that we could realize such record prices simultaneously with both packers and feedyards experiencing significant profits? In fact, feedlot margins for the most part are $200/head or higher.
People are now talking about calves being worth $1,500, and rational people are talking about $1.60 fats. If you need a calculator at this point, as I do, it means a 1,400-lb. steer is worth over $2,100. Factor in grid pricing on better cattle, and today’s steers are grossing what a better-than-average bull brought not all that long ago. This certainly is uncharted territory.
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Yes, we’re approaching price levels that the experts didn’t think we would reach for at least several years. Admittedly, it’s been a bit of the perfect storm in terms of tight supplies and avid competition for them, but the reduction in pork production also has been a boon to cattle prices.
It isn’t that these types of price run ups are unheard of, either. After all, we’ve seen it happen in grains, and we’ve certainly seen it happen in gold and oil, but it is uncharted virgin territory for the cattle industry, at least in the modern era.
Of course, a pullback seems inevitable but with every segment enjoying great margins, and with supply and demand fundamentals remaining positive, betting on the downside still appears to be as precarious as betting on the upside. No one seems to know at this point where the top is; just that we are closer this week to finding it than we were last week.
On a somewhat related note, a referendum in Texas to raise the state’s checkoff assessment passed this week by a two-to-one margin. Texas isn’t the first state to do this, of course, but I think it has special significance when the largest beef-producing state does something of this magnitude. The Texas vote also was significant in that it had the support of all the major associations and players.
Beef demand has always been the key driver in terms of prices and profitability, but that point has been made abundantly clear going forward. As one analyst said to me recently, “Tell me where beef demand goes, and I will tell you where the market goes.”
Many states were looking at the Texas referendum as a model for raising the checkoff. After all, fewer cattle translate into fewer dollars raised for advertising and promotion; and, as a percentage of value, the difference is even more dramatic.
The industry supports the checkoff, and while the branded product and value-based revolution have done far more to increase beef demand than the checkoff ever could, the economic data is clear. Investing in building beef demand is a great investment for the industry and individual producers.
What’s more, producer support hasn’t wavered that much through the years, despite the governance failings of the checkoff that appear to be at least temporarily behind the program. While the concern remains about moving forward on a national level, it appears that the viable efforts to increase checkoff dollars will come, at least in the short term, from state-led initiatives.
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