Grazing demand lifts calf prices

Steer and heifer calves traded mostly steady to $5 per cwt higher this week, according to the Agricultural Marketing Service (AMS), though there were instances of $1-$2 lower in the north-central part of the nation.

“Demand continues to be very good for grazing calves, as cattle raisers are eager to turn their cattle out on grass,” AMS analysts say. “Due to limited numbers, premiums were paid for good quality, long-time weaned calves with all their shots. Discounts were placed on fleshy, un-weaned, soft bawling calves.”

Although demand remains for feeder-weight cattle, buyers were more reluctant this week with steers and heifers trading unevenly steady, $3 lower to $5 higher.

“The cash slaughter cattle market continues to trade at a double-digit premium to the April live cattle contract,” AMS analysts say. “The June contract and later months are mostly at a double-digit discount to April, making feeder buyers cautious.”

Likewise, Andrew P. Griffith, agricultural economist at the University of Tennessee, explains in his weekly market comments that the heavy discount in deferred live cattle contracts will keep nearby feeder cattle futures in check, preventing a major price run.

“The expectation is for lightweight calf prices to strengthen through March before being pressured lower through the summer and fall months,” Griffith says. Such a price movement would be in line with the seasonal tendency for stocker cattle.”

While Griffith says a more seasonal pattern is expected for all classes of cattle for the remainder of this year, he adds that the aforementioned discount in deferred live cattle futures could limit the increase in feeder cattle prices.

Fed cattle trade steady to higher

Negotiated cash fed cattle sales were mainly steady to $1 higher than last week at $125-$128 per cwt, with the higher end of the range paid in the Northern Plains and Iowa-Minnesota. Dressed trade was steady to $2 higher at $200-$202.

“Cattle feeders welcome the extremely positive basis values, and the positive basis will continue to make them willing sellers if futures continue to trade at such a heavy discount,” Griffith explains. “The continued strength in finished cattle markets is not surprising, as beef demand remains strong. There is a good possibility fed cattle prices could continue to exceed the $120 mark for several weeks before being pressured by the summer run of cattle.”

Slaughter cattle continue to receive support from higher boxed beef prices, a decline in carcass weights and feedlots staying current, as well as strong domestic and export demand, according to AMS analysts.  

“The beef retail department is finding that lower prices are driving a greater willingness by consumers to purchase premium beef products, and retail ads are full of beef promotions,” AMS analysts say.

Choice boxed beef cutout value was $11.76 higher week to week at $219.83 per cwt on Friday. Select was $6.94 higher at $210.99. The Choice-Select spread more than doubled to $8.84, helped along by greener cattle going to market.

“Boxed beef prices, similar to finished cattle prices, continue to remain strong during a time when beef demand is generally soft,” Griffith says. “The loin and rib primal cuts continue to be the primary players in the increase in cutout prices as domestic consumers appear to be in search of steak cuts earlier than normal.”

Keep in mind that recent wholesale beef values also are enjoying the benefit of tighter fed cattle supplies in the short term.

“Cattle supplies are at the tightest point today and over the next 30-45 days that they will be this year,” Kevin Good, senior CattleFax analyst, explained at last month’s 2017 Industry Outlook. In terms of the cattle cycle, he added that cattle supplies are probably the snuggest they’ll be for the next five or six years.

Besides beef, pork and poultry supplies are trending higher at record and near-record levels.

“Total U.S. meat production (estimate) for 2017 is increased from the previous month as higher forecast beef production more than offsets lower forecast pork and turkey production,” say analysts with USDA’s Economic Research Service (ERS), in the latest monthly World Agricultural Supply and Demand Estimates (WASDE).

“First-quarter beef production is raised on current slaughter data, and third-quarter production is raised as higher expected first-quarter placements are marketed in the second half of the year. However, carcass weights for the year are forecast lower as feedlot operators are expected to remain current in their marketings.”

Even with the anticipated increase in beef production, the WASDE projected higher prices than a month earlier based on demand strength.

The projected annual WASDE steer price increased $5 on both ends of the range, compare to the previous month, to $114-$121 per cwt. Projections for fed steer price by quarter: first at $121-$124; second at $116-$122; third at $110-$120; fourth at $110-$120.

One million acres burns in the Plains

An estimated 1.4 million acres burned in Kansas, Oklahoma and Texas this week, with firefighters still struggling to gain control on Friday. That doesn’t include at least another 30,000 acres in northeastern Colorado.

Kansas was hit the hardest with an estimated 626,000 acres burned, according to the Kansas Adjutant General’s Department on Thursday. About 80% of that was in two counties.

In Oklahoma, the Forestry Service reported more than 312,000 acres burning in the Northwestern part of the state, bordering Kansas.

In Texas, the Texas A&M Forest Service reported responding to three fires encompassing 436,907 acres.

The fires were responsible for at least five human fatalities, according to various reports, along with an untold number of lost livestock and facilities.

Relief efforts are being coordinated on a number of fronts by several organizations. For a listing, see Fire Relief Resources.

Stocker value of gain incentive is shifting

“Stocker producers grazing out wheat or looking ahead to summer stocker grazing should carefully evaluate production and marketing plans with respect to purchase weight, enterprise length and sale weight of stocker cattle,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “Until or unless feed grain prices increase significantly, stocker margins will generally be squeezed; though seasonal opportunities will continue to be offered in the market.”

Peel’s recommendation is based on the fact that until recently, the equilibrium between feedlot cost of gain and stocker value of gain—about equivalent over time and on average—was out of whack.

“Record feed grain supplies and low feed prices were not fully reflected in lightweight feeder cattle prices in the second half of 2016 and into early 2017.  However, feeder prices in the past month or so have increasingly adjusted to reflect the continued reduction in feedlot cost of gain,” Peel says.

In other words, he explains stocker value of gain continued to offer incentive for cattle to come to the feedlot at heavier weights, despite lower feedlot cost of gain. As equilibrium returns, the incentive shifts toward cattle going on feed at lighter weights.

“In short, low feedlot cost of gain squeezes stocker margins and changes the signals for stocker production,” Peel says. “In general, cheap grain results in stocker production incentives to utilize lighter weight stockers and turn them over more quickly by selling at lighter feeder weights.”

This is in sharp contrast to much of the past few months when there were strong market signals to add weight in the country and take stockers to heavier weights before marketing, Peel says.

“As recently as the third week of January, the price of 500-pound, Number 1 steers in Oklahoma was about $162 per cwt or $810 per head, while 800-pound steers were priced at $132 per cwt or $1,058 per head. This implied a value of gain of $0.82 per pound for 300 pounds of weight gain,” Peel explains.

“In contrast, for the week ending March 3, 500-pound steers in Oklahoma were priced at $164 per cwt or $822 per head while 800-pound steers were priced at $125 per cwt or $997 per head, leading to a value of gain of $0.58 per pound for 300 pounds of gain. The current feeder market appears to be fully reflecting low feedlot cost of gain.”

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

CME Oil Futures