– Dr. Kenny Burdine, Livestock Marketing Specialist, University of Kentucky
Another week and another set of swings in cattle markets. Everything that I have said previously still applies in that the volatile nature of these markets is causing prices to change constantly. This is my attempt to summarize the most recent weekly USDA-AMS price data for Kentucky, which is based on auctions from March 27th through April 2nd. Understand that by early next week, things could be very different.
As was largely expected, Kentucky cattle markets were unable to hold their gains from last week. The number of cattle sold increased substantially, which was no doubt part of the reason for the declines, but the larger issue is that the market continues to struggle with factoring in changes in demand and potential impacts on the supply chain. It’s also worth noting that both live cattle and feeder cattle futures saw limit down movements on April 1st and 2nd, the two days prior to me writing this update. So, we will enter next week with a bearish tone because of this.
For the current week, calf prices were only off slightly, which can be seen in the black line in figure 1. I think they are clearly being helped by spring grass demand. CME© feeder cattle futures prices for fall 2020 have dropped by more than $25 per cwt since early March. It’s hard to imagine how high this spring calf market would be if we were still in an environment where fall feeder cattle futures were in the $140’s. At the same time, heavy feeder cattle prices gave back more than half of their gains from last week, falling by about $11 per cwt.
Figure 1: Kentucky Average ($ per cwt)
Source: USDA-AMS, Livestock Marketing Information Center, and Author Calculations
It was also not a good week for slaughter cow and bull prices, which had been a bright spot up until this point. The impact of plant closures, and concern about the potential for more plant closures, has the largest impact on cattle closest to harvest. This is primarily fed cattle, slaughter cows, and slaughter bulls. The state average prices for 80-85% boning cows fell by more than $15 per cwt from last week to this week. Cull cow prices can be seen in figure 2.
Figure 2: 80-85% Boning Cow Prices since the First Week of January
Kentucky Average ($ per cwt)
Source: USDA-AMS, Livestock Marketing Information Center, and Author Calculations
We continue to be operating in an environment where there are virtually no certainties. Today’s cattle prices are not necessarily a good indication of where prices will be tomorrow. One question that continues to come up is whether it makes sense to retain ownership on feeder cattle that are ready for market now, as opposed to selling those feeders on the current depressed market. As I write this on April 3rd, CME© fall live cattle futures are trading in the mid-upper $80’s on a per cwt basis. Now, basis has been strong recently, but it’s difficult to project that 6 months into the future. My point is that the current market is not offering an opportunity to place cattle on feed and lock in an acceptable return. So, by doing this, one is betting on considerable price improvement in the fed cattle market. Some producers may well choose to do this and it may end up being a good decision, but I can promise you it is not without risk. My basic advice remains the same – focus on what you can control and avoid doing things that are completely outside of typical marketing plan.