– Kenny Burdine, Livestock Marketing Specialist, University of Kentucky
This spring market continues to be one that can’t seem to make up its mind. As I write this (on 6/14/16), the feeder cattle market has given back most of its gains from the previous week. The futures market continues to suggest lower prices from summer to fall, and the August contract continues to trade at a discount to the CME© feeder cattle index. For the week ending June 11th, 550 lb steer calves were moving in the mid-upper $150’s on a state average basis, with some larger groups well into the $160’s. At the same time, 850 lb steers were largely trading in the $140’s.
We talked a fair amount about dressed weights last month, so I wanted to show that chart again. Note that weights have continued to drop and are now below 2015 levels, though they still remain well above the 2010-2014 average. Marketings have been running high and it is likely that higher feed prices have led to moving cattle to slaughter a bit sooner. We also talked last month about cattle on feed numbers and some trends that I was watching. The May cattle on feed report showed a continued drop in the number of cattle on feed over 120 days, but a slight increase in the number of cattle on feed over 90 days. Placements of cattle above 700 lbs continues to run above year ago levels. In general, I think the market is moving toward becoming more current, which was a good deal of our problem in the first half of this year.
Data Source: USDA-AMS and USDA-NASS Livestock Marketing Information Center
I also wanted to talk a little bit about historical calf prices as I think it may be an important item for consideration in the coming years. As I travel the state and talk with cow-calf operators, most are incredibly frustrated with the current market. This is understandable given how quickly the market has fallen since 2015, but many of them make statements suggesting they can’t cover their costs on this market. While cost structures are highly variable and some may well be such that the current market is not profitable, I think it is important to understand that our current calf market is not that far from what might be considered normal. The following chart shows historical prices for a 550# steer in Kentucky from 2007 to 2015 (this price data comes from USDA-AMS and this is as far back as I have it for the weighted average approach that is currently used). You’ll note that our current calf market is actually slightly above this 9-year average today.
Kentucky Auction Prices – 550# Steers
Weighted average basis
Source: USDA-AMS, author calculations
When I show this chart in county settings, it is typically not well-received because everyone wants to believe that our calf market needs to move back above $2 per lb. However, 550# steers only sold for more than $2 per lb on a state average basis for 19 months from March of 2014 to September of 2015. And, I maintain that our calf market reached those levels due to an extremely unique set of circumstances that extended the liquidation phase of the last cattle cycle.
As I write this, those 550 lb steer prices are actually at a higher level than they were in the summer of 2013. One of the messages that I usually try to get across is that the current calf market is a lot closer to “normal” than what we saw in 2014 and 2015. I understand the basic frustration producers have, but if cow-calf operations are truly not covering their costs in the current market, those producers really need to examine their cost structures to see what can be done. While a lot of factors can change forecasts, most indicators suggest that beef production will continue to grow, as will production of our competing meats. Given that, it is impossible to predict increasing calf prices over the next several years unless something fundamentally changes in the market.