Opinion: Cattle market poised for gains
The fed-cattle market probably is at or near the summer lows, and lower corn prices should support the calf and feeder markets in coming months. During the Cattle \
Feeders Business Summit hosted by Merck Animal Health this week in Denver, Cattle Fax senior analyst Kevin Good gave cattle feeders, weary of 18 months of losses, a little good news tempered with caution.
Fed-cattle prices, Good says, have languished around $120 per hundredweight for about the past six weeks, and negative margins in the feedyards have pressured calf and feeder prices lower. Year to date, prices for 550-pound calves have averaged about $16 per hundredweight lower than those during 2012 and prices for 750-pound yearlings have been down by about $14. Calf and feeder prices have gained strength in recent weeks though, and Good expects that trend to continue through the fourth quarter of 2013.
Timely rains have fueled hopes for a big corn crop, and corn prices, which have averaged about $7.20 per bushel year to date, could decline by $2 per bushel or more by harvest time. Good warns though, that cattle feeders looking at higher fed-cattle prices and lower corn often watch potential profits swallowed by higher prices for replacement cattle.
As for those fed-cattle prices, Good says we likely are at or near the summer lows, with the market holding at around $119 per hundredweight compared with $113 a year ago. With a typical increase of 13 percent from summer lows to fall highs, prices should reach $132 to $133 this fall.
Other key points in Good’s presentation include:
Beef cow slaughter year to date is running about 3 percent higher than last year, but after factoring out an increase in slaughter of Canadian cows, the rate is about equal to that during 2012.
Heifer slaughter as a percentage of total fed-cattle slaughter has been down somewhat the past few years, suggesting a slight trend toward rebuilding.
Imports of feeder cattle from Mexico have declined by over 406,000 head, or 45 percent so far this year, due to better weather and expanding feeding and packing capacity in Mexico, along with concerns over U.S. country of origin labeling rules.
Many of the cattle placed into U.S. feedyards this spring were held over from 2012 because of high grain prices. Significant numbers are placed against the August and September market, but feedyards have been pulling cattle forward for marketing and showlists have remained current.
U.S. beef exports have increased to Japan and Canada but declined to Russia and Mexico.
China, over the past year, has moved from the number-four beef importer to number one. The market is closed to U.S. beef, and most of China’s imports come from Australia. That growth, however, pulls Australian beef out of other markets and should help support global beef prices.
Brazil’s beef exports have declined as domestic consumption in Brazil increases.
Like fed cattle, boxed beef prices, currently at about $187 per hundredweight for the Choice cutout, should reach seasonal lows and begin gaining strength in coming weeks. Earlier this spring, cutout prices posted record highs over $210 per hundredweight.