The outlook for feeder cattle prices remains bearish long term, so much so that “the cyclical nature of beef cattle prices could force the calf and feeder cattle market even lower the next couple of years,” said University of Tennessee Agricultural Economist Andrew Griffith in a weekly market letter.
“Many older producers are probably saying they can remember when prices were much lower than this, and that is true,” Griffith said. “But cattle prices should be relative to the costs.”
The key component of any business is profit, he said, and the prospects for profit in coming months are fading.
Someone once said that farming without profit is gardening, something farmers and ranchers trying to support families or to make good on their investment would like to avoid.
“As these prices continue to decline, it is going to be difficult for producers to even cover all variable expenses,” Griffith said.
PRICES TRENDING LOWER
It is clear that this year’s prices are trending lower, just as they did from late June through the end of the year last year. This year’s levels are following the most recent trend because beginning in late 2014 more heifers were being held back from the feedlots to become cows, and their calves would then join the ranks of feeder cattle to pressure prices.
That trend continues, although there is some evidence that herd building is slowing as the number of heifers slaughtered each week begins to climb back toward the five-year average.
The growing market reluctance to cover variable costs for cow/calf producers will overtake producer after producer in coming months and years, Griffith said. In fact, for some high-cost producers, current feeder cattle returns aren’t cutting the mustard – not a cheery prospect for producers shelling out the investment for a cow.
LOWER HEIFER PRICES MAY ENHANCE RETENTION
However, while it seems counterintuitive, low heifer prices may actually enhance the prospect of retaining them for breeding, said John Nalivka, president of Sterling Marketing Inc.
The “lost opportunity cost,” or the forgone income of selling her for feeding, of retaining a heifer has gotten so low that some have expressed resignation, Nalivka said.
“I might as well keep her and breed her for what little I will get for selling her,” some producers have said, Nalivka reported.
If that’s the case over a wide swath of cow/calf producers and not a limited number of them, the cow herd could swell and feeder cattle prices could drop to very low levels.
But the cost to producers of building the herd is important, especially to those who purchased high-value breeding females the past few years, Griffith said.
“The market is now becoming a buyer’s market and a seller’s nightmare,” Griffith said. “The blow could be softened if cattle markets begin trading more on fundamentals rather than speculation and hysteria.”
CASH CATTLE MARKETS QUIET
Cash cattle markets Tuesday were quiet after trading last week $5 per cwt lower on a live basis at $105 and $9 lower on a dressed basis at $166. Asking prices were around $110 live.
The USDA’s choice cutout Tuesday was $0.91 per cwt lower at $186.62, while select was up $0.08 at $181.30. The choice/select spread narrowed to $5.32 from $6.31 with 114 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Monday was $134.42 per cwt, down $0.82. This compares with the Sep settlement Tuesday of $133.37, down $1.55.