In The Cattle Markets

Authors:

David P Anderson, Ph.D

Texas A&M

 

Brenda Boetel, Ph.D.

University of Wisconsin

 

Elliot Dennis,

University of Nebraska - Lincoln

 

Matthew Diersen, Ph.D

South Dakota State University

 

Stephen Koontz, Ph.D.

Colorado State University

 

Josh Maples, Ph.D

Mississippi State University

 

June 14, 2021

In The Cattle Markets

Stephen R. Koontz

Department of Agricultural and Resource Economics, Colorado State University

 

Substantial Cattle Price Volatility

Fed cattle, feeder cattle, and calf prices have been displaying substantial volatility since April.  There is simply much uncertainty about the path through the rest of the year.  And it is unlikely the volatility will dissipate.

There is considerable optimism about cattle markets.  Beef margins are at extraordinary levels and boxed beef product cut prices are rather high.  And this is in the face of substantial production.  There is some refilling of meat product pipelines, 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?  It appears unlikely that downstream prices and packer margins will weaken.

There are also strong exports of all red meat proteins.  Pork and beef exports are not showing substantial gains but they remain strong.  What is showing substantial gains are by product values – in particular beef by products – and these valuations are largely impacted by exports.  This is a return market conditions not observed in some time.

And yet there remains considerable pessimism.  Packers are running substantial volumes.  The Saturday kill has routinely been over 60 thousand head per week.  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 is simply not an additional day of the week to run.  Further, if they could run then would they be able to secure the trained labor?  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.  Forage prices are also strengthening with the persistent hot weather and drought in the west and northern plains.  And it 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 the month of May the elevated beef cow slaughter has communicated the drought impacts.  There was some evidence early in the year of cows moving from the west and northern plains to the moisture laden southeast.  That has likely not stopped by beef cow slaughter has increased counter-seasonally.  This is of course bearish news in the short term but bullish news long-term.

The Markets

What do the technicals say?  The price charts of the deferred contracts live cattle are impressive.  They show strong uptrends albeit the rate of increase is slowing.  Corrections are brief.  Nearby and other contracts through 2021 provide much less clear signals.  Live cattle and feeder cattle futures have broken uptrends that have been largely in place since May of 2020.  And nearby contracts are trading between support and resistance.  Breaking of resistance deserves close watching.  An improved market from a cattlemen’s viewpoint will take changes in the market-ready inventory of fed cattle.  And any improvements in feeder cattle and calves will be constrained by goings on in the feed market.

 

 

Week of

Week of

Week of

Data Source: USDA-AMS Market News

 

6/11/21

6/4/21

6/12/20

5-Area Fed Steer

all grades, live weight, $/cwt

$120.03

$119.92

$104.47

all grades, dressed weight, $/cwt

$190.69

$190.68

$166.40

Boxed Beef

Choice Price, 600-900 lb., $/cwt

$338.33

$338.56

$240.77

Choice-Select Spread, $/cwt

$30.57

$27.76

$16.56

700-800 lb. Feeder Steer

Montana 3-market, $/cwt

$139.91

--

$143.43

Nebraska 7-market, $/cwt

$147.91

$148.39

$139.86

Oklahoma 8-market, $/cwt

$142.60

$141.64

$132.07

500-600 lb. Feeder Steer

Montana 3-market, $/cwt

$162.36

--

$172.93

Nebraska 7-market, $/cwt

$175.97

$160.19

$170.31

Oklahoma 8-market, $/cwt

$163.03

$163.19

$145.88

Feed Grains

Corn, Omaha, NE, $/bu (Thursday)

$7.08

$6.87

$3.18

DDGS, Nebraska, $/ton

$210.00

$215.00

$122.50