Oklahoma State University Extension Livestock Marketing Specialist Derrell Peel, said mixed macroeconomic signals are shaking the cattle markets. His comments were in the state Extension Service’s “Cow/Calf Corner” and were instructive and are condensed for space here.
So far in 2018, beef production is higher than last year as expected, with increased slaughter and carcass weights. Beef demand has continued strong carrying forward momentum from 2017.
Feeder and fed cattle prices, along with wholesale and retail beef prices, have generally been higher this year. Despite the challenges of growing cattle and beef supplies and seasonal pressure ahead in many markets, cattle market fundamentals are quite supportive and stable.
However, cash cattle prices recently dropped sharply, led by weaker futures markets. This reflects the biggest threat to cattle markets: an increasingly turbulent and murky macroeconomic environment.
ECONOMY STRONG
By some measures, the US economy is quite strong after many months of steady, plodding recovery and growth. US unemployment has continued to decline and is projected to average less than 4% in 2018.
The Federal Open Market Committee, eyeing potential inflationary pressures as growth continues, raised interest rates last week for the sixth time since 2015.
Tax reform is an additional expansionary push for the economy that adds to FOMC concerns about inflation and makes additional, more frequent interest rate increases likely. The Federal Reserve currently projects the economy to grow at 2.7% in 2018.
TRADE FIRESTORM
Simultaneously, the black cloud of trade uncertainty, which hung over markets for months erupted last week into a storm. US tariffs on imported steel and aluminum roiled markets and prompted much speculation about potential retaliation among trade partners.
While numerous exemptions significantly weaken those tariffs, uncertainty remains high. Subsequent announcements of tariffs on US products are beginning, particularly with China, and the extent of trade war escalation remains unknown.
Likewise, the fate of NAFTA and other trade agreements continues to add market uncertainty. The negative reaction in stock and futures markets last week is only the start of a wide range of potential ripple effects in the economy. These trade hits could threaten economic growth going forward.
It’s as though the economy has one foot on the accelerator and another on the brakes, making it extremely difficult to figure out what might be coming. The fear of the unknown may be the worst of it, but the reality of the unknown could be far worse.
RESULT HARD TO FIGURE
The result is a cattle-markets environment that is especially difficult to sort out and anticipate.
Should cattle producers be running for cover? Probably not yet but I recommend figuring out where cover is and how you can get there at a moment’s notice.
Cattle producers need to monitor macroeconomic and global conditions and be prepared to switch abruptly to a strongly defensive business strategy.
CATTLE, BEEF RECAP
A total of 166 head cattle sold Wednesday on the Livestock Exchange Video Auction at $125.63 per cwt, down $98.63 from a week earlier.
Cash sales last week were at $124 to $126.50 per cwt on a live basis, down $1.50 to $2 from last week. Dressed-basis trading was $200 to $203, down $4 to $5.
The USDA’s choice cutout Monday was down $0.56 per cwt at $222.53, while select was off $0.94 at $215.46. The choice/select spread widened to $7.07 from $6.69 with 72 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Friday, was $136.68 per cwt, down $1.30. This compares with Monday’s Mar settlement of $134.92, down $0.77 and Apr’s close of $134.50, down $1.60.