It is unlikely the current cattle market volatility will dissipate any time soon, said Colorado State University Agricultural Economist Stephen Koontz, in a Livestock Marketing Information Center letter to Extension agents called In The Cattle Markets.
Fed cattle, feeder cattle and calf prices have displayed substantial volatility since April, Koontz said, and there is much uncertainty about the markets’ paths through the rest of the year.
CATTLE MARKET OPTIMISM
There is considerable optimism about cattle markets, he said. Beef margins are at extraordinary levels, and boxed beef prices are rather high, despite substantial production.
There is some refilling of meat product pipelines, Koontz said, the supply chains continue to adjust to changes in product flows, and there is substantial improvement in consumer demand. All three are occurring, strengthening prices, and some portion will likely persist into the future.
How will these markets react if production tightens some this Fall? he asked. It appears unlikely that downstream prices and packer margins will weaken.
There also are strong exports of all red meat proteins, Koontz said. Pork and beef exports, while not showing substantial gains, remain strong.
What are showing substantial gains are byproduct values – in particular beef byproducts – and these valuations largely are affected by exports, he said. This is a return to market conditions not observed in some time.
YET PESSIMISM REMAINS
And yet there remains considerable pessimism, Koontz said. Packers are running substantial volumes. The Saturday kill has routinely been over 60,000 head. This portion of the marketing system is running at capacity.
If a packer has access to an addition portion of a shift worth of cattle there simply is not an additional day of the week to run, he said.
Further, if they could run then would they be able to secure the trained labor? Koontz asked. Add to this concern, the return of feed grain prices to strong rallies.
Feed costs are returning to close to the levels set last month, he said. Forage prices also are strengthening with the persistent hot weather and drought in the West and Northern Plains. And it’s still only June – there is July and August yet to go in the hay season.
Feed prices and costs of gain are a substantial worry to cattle owners.
Through May the elevated beef cow slaughter communicated the drought effects, Koontz said.
There was some evidence early in the year of cows moving from the West and Northern Plains to the moisture-laden southeast, he said. This likely has not stopped, but beef cow slaughter has increased counter-seasonally. This is, of course, bearish news in the short term but bullish news long-term.
CATTLE, BEEF RECAP
Fed cattle traded this week at $120 to $124 per cwt on a live basis, up $1 from last week. Dressed-basis trading was at $190 to $195, up $1 to $2.
The USDA choice cutout Wednesday was down $5.26 per cwt at $329.17, while select was off $8.32 at $289.96. The choice/select spread widened to $39.21 from $36.15 with 111 loads of fabricated product and 30 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 $1.00 to $1.07 a bushel over the Jul futures and for southwest Kansas were unchanged at $0.70 over Jul, which settled at $6.73 a bushel, up $0.05 1/2.
The CME Feeder Cattle Index for the seven days ended Tuesday was $140.35 per cwt up $0.13. This compares with Wednesday’s Aug contract settlement of $157.70 per cwt, up $0.87.