Dry conditions in the western US continue to bring long-run uncertainty to cattle price prospects as strong export markets fueled rising feed costs over the last six months, said Matthew Diersen, risk and business management specialist at South Dakota State University (go Jackrabbits), in a Livestock Marketing Information Center letter to Extension agents called In The Cattle Markets.
HAY MARKETS MIXED
Hay prices suggest the forage market has been responding differently, Diersen said. The National Agricultural Statistics Service US hay price for January of $157 per short ton was up $2 a ton from January 2020.
In the Southwest, January prices were lower in Arizona, California and Colorado and higher in New Mexico compared with a year earlier, he said. In the northwest, price changes have been mixed, and across the Plains, prices were higher except for a slight decrease in South Dakota.
The next comprehensive measure of hay demand will be the May 1 ending stocks estimates, Diersen said. The LMIC’s May 1 stocks projection is 19.5 million short tons, a slight reduction from 2020, but greater than 2018 and 2019.
SEASONAL DISAPPEARANCE
As an alternative to an annual estimate, use or disappearance can be isolated by season, focusing on fall and winter disappearance, he said.
Fall disappearance is old crop plus production less Dec. 1 stocks, Diersen said. In 2020 this was 63.2 million short tons, slightly more than the typical amount used given the available supply.
As a result, Dec. 1 stocks were 84.0 million short tons, down slightly from 2019, he said. Winter use last year was low relative to the Dec. 1, 2019, stocks. Winter use tends to be 75% of Dec. 1 stocks plus a few million tons.
That implies a typical winter use of 66.6 million short tons for 2020/2021, implying May 1 stocks of only 17.4 million. Actual May 1 stocks less than this would indicate strong demand, a tenuous ending stocks situation and sharply higher price expectations.
FORAGE INSURANCE
Another, less familiar, metric to follow related to the feed situation would be indemnities tied to Pasture, Rangeland and Forage insurance, Diersen said. The first insurance interval, January-February, just ended so indemnities are expected soon in affected areas with coverage.
For 2021, there are 201 million acres insured nationally, compared with 160 million in 2020, he said. More than half of these acres are in Nevada, Texas, Arizona and New Mexico.
Last year, there were large indemnity payments in those and neighboring states, Diersen said. While growth in acres insured was large, pasture remains a relatively less-insured crop.
If PRF is not utilized, producers may be covering pasture with Noninsured Crop Disaster Assistance Program (NAP) coverage, he said. However, the acres protected under that program are not transparent.
CATTLE, BEEF RECAP
Fed cattle trading this week was at mostly $114 per cwt on a live basis with a few at $114.50, up $0.50 to $1 from last week. Dressed-basis trading was steady at $180.
The USDA choice cutout Thursday was up $1.54 per cwt at $228.47, while select was down $1.18 at $217.59. The choice/select spread widened to $10.88 from $8.16 with 107 loads of fabricated product and 22 loads of trimmings and grinds sold into the spot market.
The USDA reported Wednesday that basis bids for corn from livestock feeding operations in the Southern Plains were unchanged at $1.15 to $1.20 a bushel over the May CBOT futures contract, which settled at $5.58 a bushel, up $0.03 3/4.
The CME Feeder Cattle Index for the seven days ended Tuesday was $133.95 per cwt, up $0.09. This compares with Wednesday’s Mar contract settlement of $136.92 per cwt, up $0.35.