Though cattle supplies continue to contract, heavier carcass weights are diluting that advantage, adding to the battle feedlots face in improving returns.
“Demand has grown progressively lighter for stocker calves near the wheat-grazing regions of Texas and Oklahoma as the cooler temperatures and the lack of moisture have spoiled most dry-land wheat pasture prospects,” explained analysts with the Agricultural Marketing Service (AMS) on Friday. “Some cattlemen are now interested in selling preconditioned stockers that they put together for once-promising forage.”
That’s one reason calf prices ended the week steady to $3 lower. The exception, say the AMS folks, was steady to $3 higher along the I-70 corridor from eastern Colorado through Missouri.
Another Look: Calf Demand Slows
“The best demand was noted from Midwestern and Northern Plains backgrounders who are now done with a disappointing harvest and looking for additional off-season profit opportunities,” AMS analysts say. “Last week’s cold front also boosted calf interest with widespread hard freezes that eliminated most flies and many airborne viruses plaguing new calf purchases this fall.”
Calf and feeder markets received no help from feedlots, which continue to be squeezed by high feed costs on one hand and too-low packer prices on the other. Cash fed cattle trade finally began Friday at prices that were steady to $1 higher ($125-$126/cwt. live).
“Fed cattle prices continue to struggle as the cutout continues to force packers to bid low and as high feed prices continue to have feeders asking for higher prices,” says Andrew P. Griffith, University of Tennessee agricultural economist, in his weekly market comments. “It would be surprising to see fed cattle make any kind of upward price push before the end of the year. They will be competing with seasonal price patterns that do not bode well for the beef industry and will continue to fight high feed costs. We are likely looking to next year before we witness much of a move northward in prices.”
Another Perspective: Feedlot Pressures Cap Price Potential for Now
Though cattle supplies will continue to contract, it’s not like there are none out there. Analysts with the USDA Economic Research Service (ERS) point out in the November Livestock, Dairy and Poultry Outlook that October’s on-feed inventory (feedlots of 1,000 head or more) was the third highest in history. Although year-to-date cattle slaughter through November 3 was 4% less than the last two years, heavier carcass weights mean beef production is not quite 2% less.
“These factors would ordinarily suggest ample supplies of fed cattle through at least the end of 2012, which should lead to lower fed cattle prices,” ERS analysts say. “However, fed cattle prices have increased 12% from their 2012 low in mid-July and, for the week ending Nov. 3, 2012, were almost 4% and 29% above prices at the same points in 2011 and 2010, respectively. As a result, profit margins for both cattle feeders and beef packers will likely remain poor from now into 2013. Exacerbating the situation further for packers is the decline in byproduct values that began in mid-September.”