This spring is seeing the end of red ink flowing in the cattle feeding sector and profitability across all segments of the beef industry
Slowly, methodically and seemingly without fanfare, the cattle market has been rising since about Thanksgiving. As of late, however, the continuation of this "run" in cattle prices has started to gather attention and it has several asking how, why, and more importantly, will it continue?
Fortunately, this situation is less about speculators speculating and more about the fundamentals of both supply and demand that are underpinning this rally. On the supply side, cattle feeders placed 4% fewer cattle in feedlots for March-April-May 2010 delivery, versus the same period in 2009; and each carcass is six lbs. lighter than last week and 26 lbs. compared to a year ago. These lighter weights are the result of one of the longest and most difficult Midwest winters in a long time.
We've also seen about 2% fewer culls cows and bulls coming to market so far in 2010. The combination of these factors means that, although year-to-date U.S. beef production is flat, we should see beef supplies tighten for the balance of the spring. This suggests that cattle feeders will pull market- ready inventories forward to take advantage of these improved marketing opportunities, giving them an opportunity to improve their negotiating position with processors into the summer months.
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