What is in this article?:
- Outlook: Beef Demand Really, Really Matters!
- Beef complex shows its resilience
Pricing power and consumer sentiment will be key factors to monitor going forward, in addition to the beef supply scenario.
Beef complex shows its resilience
However, in recent years the beef complex has asserted its resilience over and over again (more on that later). And, in accordance, the story all began to change in the final week of February. Just about the time it seemed the market was entering a phase of new dynamics, beef trade began to show some signs of life.
As such, the February contract clawed its way back to close out the month at $128. Meanwhile, the April live cattle contact, especially important as an indicator of potential spring highs, traded all the way down to $127 (vs. encroaching $138 in early January), but has since worked back to the $130+ level.
Sure, some of that upside surge was fueled by a second winter storm that disrupted commerce and will prove to be a performance setback. However, renewed strength in the market was also initiated (finally) by new life in boxed-beef sales. The Choice cutout finished the month with a $5 weekly gain and is now trading at $190.
BEEF Video: BEEF Meat Market Update | Boxed Beef Trade
That provided the necessary jumpstart for feedyard managers to capture an additional $4-5 at month’s end, catapulting the cash market back to $127-8 (Figure 2). That’s compared to the previous four weeks of the cattle market trading at $124. And now the market begins to turn its attention to the April contract and potential for spring highs over the course of the next 60-90 days.
No doubt, pricing power and consumer sentiment will be key factors to monitor going forward. However, the supply scenario must also be monitored. And therein secures some friendly indicators for the market. Most notably, placements have been historically slow during the past several months. The graph below (Figure 3) represents running six-month feedyard placement totals (roughly one turn of cattle).
That population always peaks in the fall amidst fall runs. However, because of reduced supply and challenging closeouts, feedlots have proven particularly reluctant to feed cattle. The 2012 fall-run peak totaled 11.68 million head, well off historical fall placement totals. That reticence leaves a sizeable gap vs. previous years heading into peak demand season. Simultaneously, as mentioned previously, recent storms in the Central Plains will have an impact upon performance that will also cut into production over the near term.
Cattle market is poised to make another run
For now, the market has seemingly side-stepped violating major support trend lines, and appears poised to make another run at breaking through overhead resistance at $130+ in the coming months. As mentioned, that’s an important turnaround. And once again the beef complex demonstrates an incredible ability to be resilient and robust even under serious concerns. That’s largely the result of all the consumer work that’s occurred during the past 10-15 years. Final demand really, really matters!
It’s also a good lesson about exerting caution when the market seemingly gets swept with excessive sentiment one direction or the other. And the tighter markets get stretched (up or down), the faster and more sharply they seem to rebound.
That can make for some difficult rides if you’re a speculator, but for hedgers, volatility brings welcome opportunities for risk management. All that underscores the need, as mentioned every month, to be vigilant: remain informed and maintain objectivity around all aspects of the business.
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