Demand for grass calves continues strong

Increasing demand for grass-suited cattle pushed calf prices higher this week, while early-week price uncertainty for fed cattle and slumping summer futures contracts held feeder prices in check.

Steer and heifer calves sold steady to $5 per cwt higher, according to the Agricultural Marketing Service (AMS). Feeder steers and heifers traded mostly steady to $5 lower, with instances of $1-$2 higher at 600-700 pounds.

In the Southeast, calves sold steady to $3 higher, while feeder cattle traded steady to $3 lower.

"Demand remains very good for lightweight calves, and moderate to good for feeders," AMS analysts say. "The spring-like weather is creating a lot of interest for grass calves, with buyers continuing to be very aggressive for longtime-weaned calves suitable for summer grazing programs as their availability is declining."

Cash fed cattle trade was slow to develop, but when it did, prices were a pleasant surprise to some. Live prices were generally steady to $1 lower in the south at $119-$120 per cwt and steady to $1 higher in the north (as much as $2 higher in the western Corn Belt) at $119-$120. Dressed trade was steady at $190.

A late-week surge pushed Choice wholesale boxed beef cutout value $2.86 per cwt higher week to week on Friday at $190.49. Select was $3.59 higher at $189.24. At $1.25, the Choice-Select spread continued in a narrow range; 58¢ to $2.94 so far this month.

Cattle feeders see some light

Although cattle feeders remain understandably cautious when re-filling pens, there are growing indications that the economic fog is lifting.

"Cattle sold by feedlots during January were in the black for the first time in several months," say analysts with the Livestock Marketing Information Center (LMIC), in the latest Livestock Monitor. "In January, fed steer prices were the highest for any month since June 2016. January's closeout profit was the largest for any month since the summer of 2014. Estimated closeouts by LMIC showed that for the last seven months of 2016, every month had red ink. In fact, only two months since January 2015 were profitable when all economic costs were considered. Even though returns have improved, due to huge financial losses in recent years, cattle feeders will likely remain rather cautious when bidding for feeder cattle."

Keep in mind that projections like those mentioned here cannot account for price risk management, which can significantly alter estimated returns.

Assuming a feeder steer at 700-800 pounds, LMIC estimated the breakeven sale price in January at $112-$114 per cwt.

"Breakeven sales prices for the next several months will remain low, ranging from about $108 to $112 per cwt. throughout the spring months. That is the lowest since early 2011," LMIC analysts say.

Likewise, the most recent Focus on Feedlots survey from Kansas State University (KSU), estimates improving cattle feeding returns.

KSU projections for the first quarter are for steers to sell for a positive $10.84 per head in January, a positive $55.25 in February and a positive $128.09 in March. Net returns for April-September are -$39.58 to +$27.28.

Projections for the first quarter are for heifers to sell for a positive $50.49 per head in January, a positive $110.32 in February and a positive $164.14 in March. Net returns for April-September are -$22.33 to +$61.54.

The February World Agricultural Supply and Demand Estimates (WASDE) pegged the fed steer price for this year $3 per cwt higher than the previous month on both ends of the range at $109-$116. In the first quarter this year, fed steer prices are projected by WASDE at $115-$119; in the second quarter $110-$116; in the third quarter $106-$114; in the fourth quarter $104-$112.

"Despite expected improvements in cattle feeding returns, feeder cattle supplies outside feedlots are above last year and prices will remain under pressure through much of 2017," say analysts with USDA's Economic Research Service, in the February Livestock, Dairy and Poultry Outlook. "Feeder cattle prices for 2017 are forecast to average $131-139 per cwt, down about $7 from 2016."

Herd expansion appears to be slowing

Although the nation's beef cowherd likely will continue to grow this year, there are indications that expansion is slowing, albeit about a year later than some expected.

"The biggest surprise in composition of the cattle herd at the beginning of 2017 was the number of heifers being held for beef cow replacement purposes," say analysts with the Livestock Marketing Information Center (LMIC), in the latest Livestock Monitor. "That category of the cattle herd was estimated by the National Agricultural Statistics Service (NASS) to be up 1% from a year earlier. Market expectations were generally for a decline of 5%-7%, driven by the trend in calf prices, which posted a 50% decline from the peak in the spring of 2015 to the fall of 2016."

"The inventory of beef replacement heifers relative to the beef cow inventory is the best indication of future beef herd expansion," says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. "The Jan. 1, 2017 ratio of replacement heifers to the cowherd was 20.6%, down slightly from one year ago. The 2016 ratio of 21.0% was the highest in 48 years. The heifer ratio has been sharply higher since herd expansion began in 2014 with the last three years having the three highest levels since 1969. The four-year average since 2014 is 20.4%. The average for the 25 years prior to 2014 was 17.3%. The current ratio of beef replacement heifers to the cow herd suggests that herd expansion will continue relatively aggressively in 2017."

The 6.4 million head of beef replacement heifers at the beginning of the year was 1.2% more than a year earlier.

At the same time, analysts with USDA's Economic Research Service (ERS) explain in the latest monthly Livestock, Dairy and Poultry Outlook that the percentage of beef heifers retained for breeding is declining.

"Heifers for beef and milk cow replacement are often used as barometers of herd expansion or contraction rates," ERS analysts explain. "Heifers for beef cow replacement were 1% higher than last year but down from the 4% and 3% increases achieved in 2015 and 2016, the first two years of this expansion...Producers also indicated that they expect only 2% more beef heifers to calve during 2017, down from increases of 7% and 6% in 2015 and 2016."

Southern Plains lead expansion

For perspective, there were 31.2 million beef cows at the beginning of the year, according to USDA's Cattle report. That was 3.5% more than the previous year. Peel explains the nation's beef cow herd grew 7.3% since the recent ebb at the beginning of 2014.

Whether you call it expansion or simple restocking from the extended drought, the lion's share of beef cow additions over the last few years are in the Southern Plains states of Kansas, Oklahoma and Texas.

"The Southern Plains is the largest beef cow region with 26% of the national total (8.13 million head in 2017) and has added the most beef cows of any region since expansion began," Peel explains. "The region added 14.1% to the beef cow inventory, accounting for 47.3% of the 2.12 million head of additional beef cows nationwide since 2014."

Yet, Peel points out the current beef cow inventory in Texas at the beginning of the year was still 600,000 head shy of pre-drought levels. Even with continued expansion this year, he adds that it may be unlikely for the beef cow inventory there to return to pre-drought levels.

In terms of geography, LMIC analysts say, "Individual states that reported change contrary to expectations (beef replacements) were North Dakota (+23,000) head, South Dakota (+20,000), Montana (+20,000), Texas (+20,000), Kansas (+20,000), and Missouri (+15,000). States apparently showing more sensitivity to declines in cattle prices reported heifers for beef cow replacement below a year ago: Oklahoma (-15,000) head and Idaho (-20,000)."

In the case of Oklahoma, Peel points out producers there expanded rapidly since 2013; the beef cow inventory there is the most since 1984. He adds the inventory in Kansas is also the most since 1984.

CATTLE MARKET WEEKLY by Wes Ishmael

Calf-Feeder Trade

Regional Steer Price Average

North Central

South Central

Southeast

CME Feeder Index

CME Feeder Cattle Futures

CME Live Cattle Futures

CME Corn Futures

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