Rosy Cattle Market Outlooks Not Without Risk

Some market analysts are telling cattle feeders that the world will be their oyster for the next three to five years.  Tight supplies and strong beef demand likely will keep fed cattle prices high while climatologists expect a period of at least adequate rain that should keep feed production up and prices low.

However, those predictions aren’t without risk, and many expect risk to remain high until the industry rebuilds the herd to levels that can sustain a comfortable supply of beef to the market and supply, demand and pricing become more predictable.

There also is the problem with weather and feed production.  No matter what the climatologists say, there is no predicting the weather that far out, and forage and grain production could nose-dive.

If feed supplies become tight again, as they were during 2012 and 2013 droughts, the good times for cattle feeders could end.

In addition, the beef market has moved to a higher operating level, meaning higher highs and higher lows, and another recession could effectively lock out many potential consumers, some of them almost permanently.  In fact, some sources say beef already is becoming an event meal, not to the extent of lobster or some other exotic product, but not something to be enjoyed nearly every day.

 

BURGER JOINT SALES SLIPPING

 

As an indicator that points to slipping beef demand, companies like McDonald’s and Burger King saw sales at restaurants open for at least 13 months slip last year.  Bloomberg Business says sales were down 0.2% at McDonald’s and down 0.9% at Burger King.  Quoting Euromonitor International, Bloomberg said even newly opened stores saw tepid sales in 2012.

To many, such declines point to an industry that has topped out, at least in the US.  Competition has reached a saturation point, they say.

But expansion into other economies may not go over as well as it did in the glory days of US fast-food expansion.  Any other economy is not as large as the US’ and consumers may be more hesitant to eat out.

 

TECHNOLOGY WEARS A WHITE HAT

 

New technology in the form of constantly improving genetics that enhance production and the marketability of beef are being adopted at an ever-increasing pace.  Many continue to shoot for a goal of 80% choice and 80% YG2 or better, while gaining five pounds a day and converting at a 5:1 ratio.

Such goals were laughed at years ago, but better genetics now put such goals within reach.  Cattlemen may adopt more of these genetics along with innovations in marketing that tout production practices and source verification to smooth out the market bumps for their own operations.

 

CASH CATTLE REMAIN INACTIVE

 

Cash cattle markets in the Plains remain quiet after live cattle futures settled up the daily limit on Wednesday amid technical buying interest and tightening cattle supplies.

No bids are being posted, but cattle feeders are asking around $158 per cwt on a live basis and $248 to $250 on a dressed basis.  Cattle traded last week at $155 to $156 live and $242 to $245 dressed.

The USDA’s choice boxed-beef price Wednesday rose $1.47 per cwt to $247.58, up $1.47.  Select beef ended up $0.11 at $233.94.

The choice/select spread continued to widen to $13.64 from $12.28 on Tuesday.