Kentucky Beef Cattle Market Update

– Dr. Kenny Burdine, Livestock Marketing Specialist, University of Kentucky

Summer is here and feeder cattle markets keep rolling. At the time of this writing (June 13, 2017), CME© August Feeder Cattle Futures were right around $150 with fall contracts in the mid-upper $140’s. While CME© Feeder cattle futures have pulled back a little in early June, the local cash markets have hardly missed a beat. The market improvement that has been seen since last fall has been quite impressive and probably has not gotten the attention it deserved because of how sharply prices dropped from spring to fall of 2016.

As always, there is a pretty long list of factors impacting our feeder cattle markets. While fed cattle prices have been volatile, they have stayed strong and not show much of their typical June weakness yet. Feed prices have been relatively stable, at least compared to recent history. Beef exports for 2017 have been much stronger than last year and the expectation of trade with China in the near future is also encouraging for exports in the second half of 2017. And finally, dressed harvest weights began 2017 at roughly 2016 levels, but are now running about 20 lbs per head below 2016 levels. All these factors have supported our feeder cattle markets during the first half of the year.

I wanted to show a monthly price chart for both steer calves and heavy feeder steers this month to put this recent rally into perspective. Figure 1 shows monthly prices for 550 lb steers in Kentucky. The monthly prices I am showing are simply an average of the weeks that fall in that month. One can easily see the sharp drop from March 2016 to October 2016. Some of that was seasonal, but most was not. The difference in value of a 550 lb steer from March to October of last year was more than $400 per head. One can also easily see the rally from October 2016 to May 2017. Again, part of this rally was also seasonal, but represented a difference in calf value of more than $200 per head.

Figure 1. 550# Medium & Large frame #1-2 Steers, KY Auction Prices

Source: USDA-AMS, Livestock Marketing Information Center, Author Calculations

Figure 2 shows the exact same data for 850 lb steers. As expected, there is not as much variation in their prices, but the steep decline from summer to fall last year is very apparent. As is the increase in prices seen this spring. Seasonally, these heavier feeder cattle prices tend to hold their ground through summer, unlike calf prices. Of course, seasonal patterns don’t always hold and we have seen several examples of this over the last few years.

Figure 2. 850# Medium & Large Frame #1-2 Steers, Kentucky Auction Prices

Source: USDA-AMS, Livestock Marketing Information Center, Author Calculations

It will be very interesting to see how the recent run-up in prices impacts cattle numbers over the course of the year. Fall prices will have more impact than spring as most of our cow-calf operations calve in the spring of the year. With the exception of some areas in the Northern Plains, most of cattle country is in pretty good shape in terms of moisture as of mid-June. While there is always the potential for something unexpected to impact the cattle markets, I feel like the trajectory of harvest weights will be the key factor to watch over the course of the summer.

Figure 3 shows dressed steer weights for the current year, last year, and for 2011-2015. The decrease in harvest weights from January to May was a major driver in the markets this spring. Favorable feedlot profitability seemed to result in feedlots pulling cattle forward for harvest and brought the market more current. Seasonally, weights tend to increase from now until fall, and I would expect the same thing this year. But, I also expect weights to run below 2016 levels for the rest of the year. A fed cattle market that remains current is always good news for feeder cattle markets as it puts those feedyards back in the market sooner, and ideally, coming of a profitable closeout cycle as they currently are.

Source: USDA-AMS, USDA-NASS, Livestock Marketing Information Center