Remember that old saying, “If you don’t like the weather, wait a minute; it’ll change?” Well, keep waiting.
According to CattleFax weatherman Art Douglas, El Niño will continue to develop and spread as the year goes on. While he’s optimistic that the southern third of the U.S. will get wetter and he sees some relief in the central and northern parts of the country, it won’t be dramatic enough, or come soon enough, to save the corn crop and pasture conditions this year.
“If you’re in the central and north (parts of the country), you’re probably stuck with what you’ve got as we think about the remainder of the growing season,” CattleFax analyst Kevin Good told the 700-plus cattlemen who attended the Cattle Industry Summer Meeting last week in Denver.
Looking at the corn market, Good says the market is trying to build in a worst-case scenario and is anticipating a stocks-to-use ratio somewhere around 5%. However, once the crop condition reports begin to stabilize, it won’t take the market long to find its high and then adjust to the reality of whatever the anticipated harvest may be.
“So as we think about the next couple of months, we think the market is going to find its highs sooner, not later,” Good says. Once it does that, corn prices will eventually find a trading range, which will allow cattle feeders to better anticipate their future.
“We spent a lot of time with corn values plus-or-minus $6.50 to $6.75 in the last 12 months,” Good says. “We don’t think that’s going to change a whole lot.” Prices may be elevated by a quarter to 50¢, he says, as the corn market finds its trading range in the coming months. “But that’s the range we’re going to look at as we look at cattle prices going into 2013.”
Six months ago, most in the beef business were looking at 2012 as the year the beef herd stabilized. “Frankly, we’re kicking that can down the road at least one, if not two, years because of higher corn values and the drought,” he says. “The drought alone is going to drive more cows to town than we would have envisioned.”
When all is said and done, CattleFax anticipates the cowherd will be down about 500,000 head at year’s end. “Last year we were down about 900,000 head,” Good says. “So liquidation, but at a slower pace.”
Which means any potential expansion is still a few years away. “If Mother Nature cooperates, we will start so see some heifer retention and some expansion. But it’s not this year, probably not next year,” he says. “Next year, we slow the liquidation and over the next couple of years, start to see some expansion.”
Utility cow values, even in the face of liquidation, will stay strong, he says. “If we’re going to harvest fewer cattle (compared with last year), they could be worth $80 this year. What’s it going to be next year? It could be close to $90.”
When considering the calf and yearling markets, corn is the big question mark. “If we’re right in assuming that we’re putting a short-term high in corn in the next 30-45 days, and we do find a trading range over the next year of $6.50 to $7.50, that’s an area we’ve been used to (trading in) the last 12 months,” he says.
So hearken back to this past spring and the calf and feeder cattle market. “On a weekly average, we got to $1.88 for calves; yearlings were close to $1.60 for a high this spring. As the stocks-to-use ratio is known and usage starts to drop, it gives us some room for calf and yearling values going into 2013 to stay as strong on average as this year, if not stronger.”