The different patterns of boxed beef, fed and feeder cattle prices in the past six weeks illustrates the fact that these markets operate with very distinct dynamics, said Oklahoma State University Agricultural Economist Derrell Peel, in a letter to Extension Agents called Cow/Calf Corner.
Those dynamics became very apparent as the distinction between the current market and expectations for future supply and demand conditions widened, Peel said.
Under more stable and normal circumstances, the distinction between nearby and expected supply and demand is not particularly significant. However, current markets create sharp disparities between nearby supply and demand and expectations for coming supply and demand, creating many seeming paradoxes.
CATTLE MARKETS SHOW EXTREME VOLATILITY
Fed and feeder cattle markets have shown extreme volatility while balancing current and expected market conditions, Peel said. As the Dow Jones Industrial Average fell from more than 29,000 the third week of February to less than 19,000 one month later, Jun live cattle futures fell from about $112 per cwt to $86.
The markets reflect the concern about weakening global macroeconomic conditions resulting from Covid-19, Peel said. Live cattle futures also reflected the risk that labor disruptions could disrupt packing plant operations.
Cash fed cattle prices declined from nearly $120 per cwt in mid-February to a low around $106 in mid-March, he said. Cash fed prices declined on broader concerns reflected in the futures as well as the supply pressure of increased beef production.
Year-to-date beef production is up 6.3% through mid-March, Peel said. In the past two weeks, cash fed cattle prices rebounded to about $119 per cwt as packers increased production in response to the sharp demand increase for beef. Production was estimated to be up more than 11% the last two weeks of March.
Saturday cattle slaughter the past two weeks was estimated to be up 90% year over year and contribute to a 5.9% year-over-year increase in total slaughter for the period, and carcass weights continued well above year-ago.
FEEDER CATTLE FOLLOW
May feeder cattle futures also reflected the macroeconomic uncertainty and declined from more than $143 per cwt in mid-February to a low of about $109 by mid-March, Peel said. Futures continue to exhibit tremendous volatility trying to balance longer-term macroeconomic concerns with short-term market conditions.
Cash feeders followed futures with the Oklahoma combined auction prices for 500- to 550-pound No 1 steer prices dropping from about $184 per cwt in the third week of February to a low near $152 one month later, Peel said. Prices for 750- 800-pound No 1 steers declined from about $139 per cwt to $117 over the same period.
That resulted in a corresponding drop in marketings, he said. Combined auction totals for Oklahoma declined 59% year over year in the last three weeks of March. Nationally, feeder and stocker receipts were down 56% in the last three weeks of March.
Then the squeeze on feeder supplies pushed prices 10% to 12% higher over the previous week, he said.
CATTLE, BEEF RECAP
Cash cattle traded in the Plains last week at $118 to $120 per cwt on a live basis, up $6 to $7 from the previous week, and at mostly $190 on a dressed basis, up $5 to $10.
The USDA choice cutout Tuesday was down $7.82 per cwt at $243.15, while select was down $9.18 at $228.96. The choice/select spread widened to $14.19 from $12.83 with 78 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Monday was $131.10 per cwt, down $1.47. This compares with Tuesday’s Apr contract settlement of $121.92, up $1.87.