– Kenny Burdine, Livestock Marketing Specialist, University of Kentucky
This was one of the more frustrating spring markets I remember. After seeing calf prices reach record levels in the spring of 2014 and take those records out in the spring of 2015, a reversion back to 2013 calf price levels was not what most were hoping for. Admittedly, I was expecting stronger prices when I made forecasts last winter. For the most part, I think the same factors that pulled the market down in the second half of 2015, also explain the weakness the spring. While the beef trade picture has improved somewhat, it is not where many had hoped it would be given the production increases we are likely to see. Pork and poultry are both likely to show another production increase in 2016 and those forecasts have been raised since winter. And although slaughter weights have decreased from their fall 2015 highs, they do remain high from a historical perspective.
As I write this (5-12-16), the market is enjoying its second straight week of improvement. After trading at levels around $140 per cwt, August feeder cattle futures have pushed into the upper $140’s and tested the $150 level. For the first week of May, 550 lb steer calves were moving at around $155 per cwt on a state average basis, with some larger groups well into the $160’s. At the same time, 850 lb steers were trading in the mid-$130’s for the most part. The recent improvement in feeder cattle futures has set a slightly more optimistic tone in local markets.
I really wanted to show about 20 different charts this month, but narrowed it down to two. The first chart below is the most recent 5 market weighted average fed cattle price. You’ll notice that the fed cattle market seemed to drop sooner than normal this year. It usually puts in a bottom around June and moves up through fall. That would be encouraging if it happened this year since the market dropped from summer to fall in 2015 and simply didn’t allow the feeder cattle market to pick up any momentum after spring.
Data Source: USDA-AMS
Livestock Marketing Information Center
I also wanted to show the chart of dressed weights as I think this has been another major factor impacting our markets. You can easily see the extremely high levels from fall 2015 and can also see that weights have dropped significantly from then. However, you’ll also notice that weights typically do decrease from fall to spring and we are at about the usual seasonal low as I write this. So, it’s probably a bit early to say that this issue is safely in our rear-view mirror. It will be very interesting to watch slaughter weights for the remainder of 2016 for a handful of reasons, most of which are related to feed prices and cattle on feed numbers. Clearly, the price of feed, in relation to what fed cattle prices do, will determine how hard feedlots push feedyard cattle.
While I try not to read a great deal into a single month’s cattle on feed report, it is worth noting that the April report finally showed a sizeable drop in the number of cattle that had been on feed over 120 days. It was also the second straight month that we saw a drop in the number of cattle that had been on feed over 90 days. This is certainly a sign that we may be working through some of those very heavy cattle and is consistent with the drop in slaughter weights we have been seeing. The second trend that likely needs to be pointed out is the increase in the number of cattle that are being placed weighing more than 700 lbs. Heavy placed cattle tend to finish heavier, which may have implications for the second half of 2016. But, at the same time, I feel that this is primarily due to the fact that feeder cattle inventory outside of feedyards had been growing for a while, so it is somewhat encouraging that we are seeing some of those cattle placed. We either deal with them now or later, and if we deal with them later, they will only have great impact when they hit the market.
Data Source: USDA-AMS and USDA-NASS
Livestock Marketing Information Center