February 11, 2020

In The Cattle Markets

Brenda Boetel, Professor

Department of Agricultural Economics, University of Wisconsin-River Falls

Cattle Cycle

The semi-annual Cattle report was release on January 31, 2020.  The report showed what many analysts had already been saying; the total number of cattle and calves in the USA was at 94.4 million head, slightly down from January 2019’s number of 94.8 million head. This number indicates that the industry has entered into the liquidation phase of the cattle cycle.  But what does that mean for cattle markets?

Cattle cycles have different phases: a liquidation phases, where cattle numbers decrease, and an expansion phase, where cattle numbers increase.  This most recent cattle cycle began expansion in 2015, following 7 years of contraction.  The previous cycle had 8 years of contraction. 

Beef production cycles lag the cattle numbers because in order to contract the herd, more cattle must be harvested and to the grow the herd, cattle must be kept back as replacements.  Price cycles typically work opposite cattle cycles, in that when cattle numbers are increasing, cattle prices are decreasing.

Given that we are in the liquidation phase of the cycle, we could expect an increasing trend in cattle prices, over the next few years. The liquidation phase begins after beef supply increased enough such that the decrease in beef price triggers a decrease in the cattle numbers. Given the high slaughter numbers at the start of the liquidation phase we typically see a further dip in prices. At the beginning of the liquidation phase, packers typically hold the greatest amount of leverage.  As the cycle progresses through liquidation different segments will hold greater amounts of leverage until we get to the expansion phase.  At the start of the expansion phase, the cow/calf producer typically holds the greatest leverage.

As we move through the increased slaughter numbers the overall decrease in cattle numbers will bring cyclically higher prices, but that won’t occur until 2021 at the earliest.  The lower calf crop will likely bring higher calf prices relative to 2019 in fall 2020.

The Markets

The USDA WASDE report was released on February 11, 2020.  Corn ending stocks remained unchanged from the January report.  USDA did raise the demand for corn for ethanol by 50 million bushels, but decreased exports by 50 million to keep ending stocks the same.  March corn futures were lower at end of day on Tuesday.  The trend though is sideways with March corn prices staying between $3.70 and $4.00. 

Boxed beef prices are mixed with choice down $1.08 at $207.83 and select up $0.83 at $204.53. Tuesday's slaughter is estimated at 122,000 head, steady with last week and 1,000 head more than a year ago.

Cattle contracts traded lower on Tuesday.  Tuesday afternoon saw live cattle contracts drop over $1.00. Feeder cattle contracts fell lower through closing on Tuesday but were able to stay above the $134.60 support plane. Choppy sideways trading in the feeder markets will likely continue until some support is found in the live cattle market.

*USDA/AMS changed formats for the distiller’s grain report.  This data will not be available until further notice.