What is in this article?:
- Outlook: $3-$5 Weekly Market Swings Are Becoming Routine
- Feeders are in a favorable position
2014 is shaping up to be highly significant year for the beef industry. New cattle market levels call for new perspectives on volatility, with $3-$5 swings are seemingly becoming more routine from week to week.
Feeders are in a favorable position
As mentioned above, cattle feeders find themselves in an especially favorable spot. Consider that during August and September, feedyards were largely paying between $150 and $160/cwt. for yearlings against a mostly-$131 February live cattle contract. Even at those levels, the cattle crush was highly favorable and has only gotten better since. (The only real hit in recent months has been in the price of natural gas, which is required to sustain steam-flaking operations.) Therefore, this recent run starts 2014 off being highly constructive, creating an especially positive note to closeouts the industry hasn’t seen in a long time.
That extra cash proved fortuitous for wheat grazers and other winter programs. The weather was not only disrupting beef trade; storms and cold were also wearing on wheat pasture and burning through available forage inventory for all stocker programs. So, while the market was providing some prosperity, it was also providing an opportunity to stock up on available replacements.
Feedyards proved willing buyers and, thus remained busy receiving cattle. USDA’s February Cattle on Feed report indicated January placements to surge 9% ahead of last year’s pace and the largest January placement rate since 2006. Perhaps more importantly, the six-month placement total is now running 1% bigger than 2013.
All the while, the nation’s feeder cattle supply outside of feedyards is some 750,000 head smaller (3%) compared to last year (Figure 3). Therefore, January’s activity tightens up available feeder cattle supply even further in coming months.
Weather has been the major theme of the past several months. Clearly, that’s impacted the production side of the equation. What’s most important, though, is the consumer and how this may all influence purchasing decisions in coming months.
• On one hand, the favorable outlook says consumers possess cabin fever; thus, there’s some pent up demand for them to get out of the house, spend and enjoy themselves – all good for beef.
• One the other hand, there’s the more concerning outlook that higher utility bills will take a major bite out of their propensity to spend – not so good for beef. That all remains to be seen – consumers are generally feeling better but gains are slow and steady (Figure 4).
Either way, consumer behavior is the key factor going forward. It will dictate beef movement, futures markets and the overall tone of the spring market.
As mentioned last month, 2014 is shaping up to be highly significant year for the beef industry. New market levels call for new perspectives on volatility: $3-$5 swings are seemingly becoming more routine from week to week. The market will continue to wrestle with signals around beef demand, tight supply and increasing requirements for capital.
That brings us around to the ever-increasing need to be vigilant about all influences upon the business, objectivity in decision making, and the requirement to keep fully informed.
More resources for you: