– Dr. Kenny Burdine, Livestock Marketing Specialist, University of Kentucky
As I was starting to write this month’s market update, I naturally went back and read what I wrote last month. The irony is that the October CME© feeder cattle futures contract is actually trading slightly lower than it was when I wrote last month’s article. However, in some ways, more optimism seems to be in the air now than back in mid-September. Last month I wrote that October CME© futures were trading in the mid-$190’s, but had been almost continually dropping from $220 back in early summer. As I write this, October CME© feeder cattle futures are trading in the low-$190’s, but tested the mid-$170’s early this month.
Several factors led to the drop that was seen from summer to fall. A portion was simply seasonality. Calf prices typically decrease from spring to early winter, just not by the magnitude that was seen in 2015. I also mentioned last month that moderate increases in pork and poultry production are also putting some pressure on a beef market that had simply been on a tear since the first of the year. I wanted to focus some discussion this month on slaughter weights as I didn’t feel I gave that topic adequate treatment in September.
The chart below shows weekly dressed steer weights in the US. It is normal for weights to increase as we move towards winter, but notice how much weights are up from last year. Further, the rate of increase in slaughter weight appears to have increased in recent months. This run-up in slaughter weight has been another factor that has pressured cattle prices recently. This may be partially explained by the grain market, but I also think there is a human element as well. As fed cattle dropped, there was likely a tendency for feedlots to delay marketing in hopes of a price rebound. At the same time, since the feeder cattle market was also dropping rapidly, there was likely a tendency to delay placements. The result was a growing number of heavy cattle on the market and an increase in slaughter weights.
The good news is that both the feeder and fed cattle markets have gained some ground since the first of the month. While it is impossible to guess how sustained this will be, it is certainly a good sign and should pull some cattle through the system, which is exactly what this market needs. Unfortunately, it was another recent example of how quickly things can change in these volatile markets. Cow-calf operations are seeing significant reductions in the value of calves and summer stocker operators likely placed calves in the spring expecting a much stronger market this fall. Many stocker operations are dealing with some major losses on feeders this year. It really hammers home the importance of price risk management, which has been a reoccurring theme over the last several years.
Data Source: USDA-AMS and USDA-NASS
Livestock Marketing Information Center