Dr. Kenny Burdine, Livestock Marketing Specialist, University of Kentucky
As I summarize the cattle markets in mid-August, I am struck by how much better things look than they did in the spring. It looks like fed cattle are going to trade north of $104 per cwt this week, which is an increase of almost $10 per cwt from the first week of July. As I write this on the afternoon of Friday August 14th, August CME© Live Cattle Futures are trading around $107-$108 per cwt, which suggests a relatively normal cash-to-futures relationship. And, April fats are above $117, which bodes very well for feeders this fall.
For the last 6 weeks, federally inspected slaughter has been running from right at 2019 levels to about 2% below. Slaughter weights aren’t coming down, but seasonally they tend to increase until late fall / early winter anyway. The rate of increase above year-ago is slowly decreasing and I have to think that will continue for a couple more months. This is a sign that we are working through the backlog of cattle in the system, which has been a topic of much discussion since spring and one that I will revisit at the end of this update.
CME© feeder cattle futures have continued to increase and are now in the mid-upper $140’s for fall. Spring contracts are at a slight discount, trading in the low-mid $140’s. Heavy feeders at Kentucky auctions have continued to improve since early July. Figure 1 shows a drop during the second week of August for an 850 lb M/L #1-2 steer, but I think that was an anomaly in the 850 to 900 lb range for that week. That will happen some when showing weekly prices as I have been lately. On a state average basis, 850 lb steers are up almost $15 per cwt from early July and around $25 per cwt from early May. Calf prices have held pretty well through summer too. We never got our spring run-up, but also really haven’t backed off either. 550 lb M/L #1-2 steers have pushed back into the mid-$140’s with groups and value-added calves in the $150’s.
Figure 1:
Source: USDA-AMS, Livestock Marketing Information Center, and Author Calculations
Cull cow prices have dropped over the last two weeks but remain strong. Average dressing 80-85% boning cows averaged $61.55 per cwt for the week (see figure 2), but a lot of quality cull cows were in the $70’s. Each time this year that I have seen the cull cow market pull back, as it has the last couple weeks, it surprises me by pushing higher again. But I have to think that we are moving into a seasonal decline in cull cow markets.
Figure 2:
Source: USDA-AMS, Livestock Marketing Information Center, and Author Calculations
Finally, I wanted to quickly revisit the potential backlog of cattle that we have been discussing since spring. Cattle-on-feed numbers are running very close to where they were last year and July estimates suggested that a larger than usual number of these cattle had been on feed over 90 and 120 days. The good news there is that those cattle will likely be harvested soon, and feedlots should be able to aggressively place cattle this fall.
It is always more difficult to estimate the number of feeder cattle outside of feedlots, but the USDA midyear cattle inventory report does give us a chance to do that. If I exclude heifers held for replacement purposes, the number of steers and heifers over 500 lbs was up by 400,000 head, or a little less than 2%. If I also consider the fact that the 2020 calf crop is a little smaller, total feeder cattle outside of feedlots is less than 1% larger than last year. So, while I don’t question that we still have some cattle to work through, I do think this approach puts that in perspective to some degree. And, I think it paints a much more optimistic picture for this fall.
EDITOR’s NOTE: Listen below as Dr. Burdine further shares his thoughts on the backlog of cattle and the current situation regarding fed cattle and the cattle inventory: