The odds suggest cow-calf producers will be rewarded for pricing their 2014 spring calf crop later rather than sooner.
“It’s stunning. That’s what it is.”
That’s how one lifelong rancher aptly summed up calf and feeder prices that continued to defy the most optimistic expectations through the first week of June.
At the time, feeder cattle futures had just crossed the $2/cwt. threshold for the first time in history. The CME feeder index was hovering around $195/cwt., a smooth $14 more than it had been 30 days prior and $63 more than the same time a year earlier.
That same week, 1,006 steers weighing an average of 833 lbs. sold for $201.32/cwt. at the Ft. Pierre Livestock Auction in South Dakota. Earlier in the week, eight-weight steers crossed the $2/cwt. threshold in Nebraska.
Based on regional weighted average feeder steer prices reported by USDA’s Agricultural Marketing Service, steers weighing 500-600 lbs. were $80/cwt. higher year-over-year. In fact, reports surfaced that some top-drawer, light calves traded for $300/cwt.
Just as stunning is the notion that more loft probably remains.
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“It would likely require a decimation of corn yields similar to 2012 to cause any significant decline in feeder cattle prices, since cattle numbers are the tightest since 1951,” Andrew P. Griffith, University of Tennessee agricultural economist, explained in the first week of June. “There is still potential for calf prices to break as the market heads into the heat of summer, but it’s unlikely the feeder cattle market will break any time in the next 4-5 months.”
Using South Dakota as an example, Darrell Mark, South Dakota State University adjunct professor of agricultural economics, wrote in his early-June Profit Tips newsletter that steer calves weighing 500-599 lbs. brought about $191/cwt. there last October.
“At this point, the prospects for a large corn crop and increasingly tight calf supplies indicate prices this fall could be 10-15% higher than last year, which would put steer calf prices close to $215/cwt. this fall,” Mark says. “The October 2014 CME feeder cattle futures are currently trading near $198/cwt. (May 30). Historically, the basis for 500- to 599-lb. steer calves in South Dakota in October is close to +$20/cwt. So, a futures-based price forecast adjusted for local basis would also suggest prices in the mid to upper $210s this fall.”
Tight supplies are obviously the biggest and loudest factor, as wholesale beef values – even with their extreme volatility since January – and cash fed cattle prices remain higher than expected. In part, this is due to:
• There's less pork production and higher pork prices than expected due to reductions caused by porcine epidemic diarrhea virus (PEDv), while poultry producers have struggled to expand production as much and as soon as anticipated.
• Domestic beef demand remains resilient, while a stout export demand that continues to underpin the market. According to the U.S. Meat Export Foundation, export value in April was $262.41/head of fed cattle slaughter.
• In addition, feedlot marketing remained current, while a declining beef cow slaughter suggested herd expansion was taking place. And more light calves traded earlier than normal, suggesting fall supplies will be more limited.
“The downside price risk will primarily be related to increases in corn and feedstuff prices,” Mark says. Though possible, he believes that risk is minimal considering the current pace of crop progress.
On the other hand, Mark adds that lower corn prices associated with a large national yield, if realized, could prompt further increases in feeder cattle prices later this summer and fall.
“Certainly, the very tight feeder calf supply resulting from the historically small beef cowherd underpins the bullish argument for the feeder cattle market. For that reason and the potential for still higher prices, locking in price levels through futures hedges and forward contracts may not be optimal for many producers this year,” he says.
Much like last year, the odds suggest cow-calf producers will be rewarded for pricing their spring calf crop later rather than sooner.
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