Extreme market swings of the last couple of years provided enough volatility to make many cattle producers and feeders jumpy.
Prices rose to record highs and then fell into a dive the likes of which many have never seen. Factors such as cattle inventory, competing meat production, rising slaughter weights and international trade were all at play in the markets.
However, University of Kentucky Agricultural Economists Kenny Burdine and Greg Halich found some lessons to be learned or relearned in the market’s gyrations.
1. If calf prices seem too good to be true, they probably are.
The lesson here was that producers shouldn’t expect prices that seem too good to be true to last. They never do.
The old adage “the cure for high prices is high prices” always holds true. It is easy to get caught up in the euphoria of the moment and find reasons to think it’s different this time, but producers always ratchet up production to take advantage of the high prices, thus killing the profits.
2. The cattle cycle isn’t dead.
Two major factors external events in the last six years or so affected the current cycle and changed its dynamics, but cow/calf producer responses remained the same. They were just held in check for a time.
First, historically high grain prices from 2008 to 2013 caused significant conversion of pasture and hay ground into row crops. This occurred during the liquidation phase of the last cattle cycle and caused cow numbers to drop faster than normal.
Second, from 2011 to 2013, a major drought hit a large section of the Southern Plains, forcing massive herd liquidation and dropping cow numbers. This drought was in an area that made up roughly 25% of the US cow herd at the time.
The combined effect was to take cow numbers lower at a time when they normally would be expanding. Calf profits were enough at the time to encourage expansion, but drought-reduced pasture forced further declines instead.
As weather improved, pastures and cow herds are growing rapidly, showing that the cattle cycle isn’t dead – it was just delayed.
3. Expansion isn’t just about heifers.
When increased moisture was overlaid with strong calf prices in 2014 and 2015, most of the initial increase in cow inventory came from reduced beef cow slaughter. By this time, the herd was young enough that fewer cows were at the end of their productive lives. It made sense to cull fewer cows while keeping heifers for breeding.
4. The effect of competing meats.
2014 was a banner year for beef, pork and chicken producers, so it is no surprise that expansion occurred in all three.
However, chicken and pork expansion can be faster than beef, and 2016 likely will be the first year that beef production actually increases, while competing meats are already in the market. As a result, beef price pressure occurred before the increase in supply.
The economists encouraged cattle producers to learn to manage price risk and to keep a long-term perspective when making production decisions.
CASH CATTLE MARKETS QUIET
Cash cattle markets Tuesday remained quiet with no bids from packer buyers and feedlots pricing cattle at $140 per cwt on a live basis and $2.20 dressed. Cash trading last week was $3 to $4 lower at mostly $136 per cwt on a live basis and off $ to to $4 on a dressed basis at mostly $218.
The USDA’s choice cutout price Tuesday was down $0.22 per cwt at $225.06, and the select cutout was up $0.79 at $216.84. The choice/select spread widened to $8.22 from $7.65, as 137 loads of fabricated product were sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Monday was $158.08 per cwt, down $0.51. This compares with the Apr CME settlement of $156.07, up $0.50.