The pandemic and other market shocks since 2019 have brought things that affect cattle and beef markets in different ways and over different lengths of time, said Derrell Peel, Extension livestock market specialist at Oklahoma State University, in a letter to Extension agents called Cow-Calf Corner.
Much of the challenge in 2021 has been to get cattle and beef product markets more in synch as an industry in the midst of ongoing COVID-19 related effects plus the fact that some markets may be changed permanently or affected for a very long time.
FEEDLOT BOTTLENECK
The biggest 2021 bottleneck has been the fed cattle market and the struggles to clear the 2020 backlog, he said. These dynamics pushed the cyclical peak in feedlot production into 2021.
Current fed cattle market problems are the result of that peak feedlot production constrained by packing industry capacity limitations, Peel said. Long-term reductions in packing industry infrastructure combined with chronic labor limitations, which predate but are made worse by COVID-19, added months to the time needed to improve the fed cattle market situation.
The long-awaited improvement in fed cattle markets appears to have arrived with fed cattle prices jumping roughly $5 per cwt the past two weeks, he said.
With that pinch point removed, cattle and beef markets are poised to realign and rebalance, Peel said. The industry will be better positioned to capitalize on its building optimism.
BEETER THINGS AHEAD
Tighter supply and continued strong demand will take markets to higher levels, he said. Strong wholesale and retail prices have been pulling on the industry most of this year, and the foreign trade picture continues to improve.
On the supply side, feeder cattle markets, already higher year over year, are increasingly supported by cyclically reduced feeder cattle supplies and are poised to benefit even more from higher fed cattle prices, Peel said.
Yet plenty of challenges remain, Peel said. Drought continues to be a major factor in many regions, which may determine the trajectory of the industry in coming years.
Higher crop and feed ingredient prices are a particular challenge for feedlots but also for cow-calf and stocker producers, most especially those struggling with drought-reduced feed and forage availability, Peel said. Labor issues are pervasive across the industry through to retail, and supply chain disruptions will continue.
Barring new shocks, cattle and beef markets are ready to move on, he said. After many months of turmoil and heightened volatility, the industry is looking forward to the opportunities and challenges of a more stable, but always dynamic, market environment in coming months.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $129.52 to $131.75 per cwt, compared with last week’s range of $125.93 to $127.88. FOB dressed steers and heifers went for $197.79 to $202.55 per cwt, versus $195.39 to $198.32.
The USDA choice cutout Wednesday was down $2.28 per cwt at $285.52, while select was off $4.00 at $266.62. The choice/select spread widened to $18.90 from $17.18 with 152 loads of fabricated product and 42 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 $1.30 to $1.40 a bushel over the Dec futures and for southwest Kansas were unchanged at $0.40 over Dec, which settled at $5.69 1/4 a bushel, up $0.14 1/2.
The CME Feeder Cattle Index for the seven days ended Tuesday was $154.98 per cwt up $0.12. This compares with Wednesday’s Nov contract settlement of $156.65 per cwt, down $1.25.