Cattle markets are approaching the end of the first quarter of 2023 on a very strong note, said Stephen Koontz, agricultural economist at Colorado State University, in a Livestock Marketing Information Center letter called In The Cattle Markets.
ROBUST PRICES
Animal prices across the board have been very robust, Koontz said. Fed cattle have traded at more than $165 per cwt; 7-8 cwt feeder cattle have traded at more than $190, and 5-6 cwt calves have traded just less than $235.
Live cattle futures got to within $11 per cwt of all-time high prices established in November 2014.
However, feeder cattle are well below their records because of the strength in forage and feedgrain markets, Koontz said.
Cow-quality hay is routinely more than $200 a short ton, and corn futures have only recently shown enough weakness to drop to less than $6 a bushel. Cash basis in the Southern Plains continues to hold at $1 over the nearby futures.
AN EARLY SPRING
It is possible the strength is the usual spring seasonal rally come early, Koontz said. There may be more up moves for the second quarter, but it likely would require changes in the fundamentals not seen now.
Recent beef export news has been disappointing whereas pork and chicken exports have been strong, he said. The relative protein prices do much to explain this result.
While retail margins have remained wide, packer margins narrowed considerably through the fourth quarter of 2022, Koontz said. These margins were large compared to what is typically observed in the first quarter of the year, but defining what is typical, or what is the new norm, is difficult.
What is inarguable is the strength of domestic demand, he said. It seems unlikely this will persist with the slowing economy and the central bank’s aggressive moves to control inflation.
FOR AND AGAINST
The number of factors in the for-and-against list regarding optimism in cattle prices has more on the against side, Koontz said. The one big change possible in the for-category is the return to more normal forage and feedgrain prices.
If that is the case, feeder cattle and calves are under-valued, he said. But that will take a retreat from costs of gain that range from $1.30 to $1.50 a pound. This is the major change in current fundamentals that would result in further strength in the calf market.
All in all, the first quarter of 2023 looks to be more of a return to market conditions observed prior to 2016-17, he said. Tighter supplies and thinner margins, which will be made more pronounced by any herd rebuilding.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $164.03 to $165.84 per cwt, compared with last week’s range of $161.55 to $167.74. FOB dressed steers, and heifers went for $259.09 to $261.30 per cwt, versus $258.70 to $266.29.
The USDA choice cutout Wednesday was up $1.38 per cwt at $281.30 while select was off $1.73 at $269.82. The choice/select spread widened to $11.48 from $8.37 with 107 loads of fabricated product and 40 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.60 to $1.70 a bushel over the May corn contract. Bids in Kansas were steady at $0.75 over May, which settled at $6.33 1/2 a bushel, up $0.03 1/2.
The CME Feeder Cattle Index for the seven days ended Tuesday was $187.69 per cwt, down $0.09. This compares with Wednesday’s Mar contract settlement of $188.25 per cwt, down $0.52.