Agricultural News
Higher SPring Peaks Than Expected in Cattle Market- Winter Weather Was a Factor
Sat, 03 Apr 2010 10:06:48 CDT
In the weekly eletronic publication called Cow Calf Corner- OSU Extension Livestock Market Economist Dr. Derrell Peel offers these thoughts about the cattle market as we begin the second quarter of the year. Besides these thoughts that we have from Dr. Peel below- you can also click here for the Friday Beef Buzz that we had with Derrell about the fed and feeder markets.
In mid-March it appeared that cattle and boxed beef prices had peaked seasonally but not so. In the last two weeks markets have pushed even higher and once again appear to be at a peak, albeit at a higher peak than anyone expected. Does the market have any more upside potential at this time? Somewhat nervously, I would say probably not but you can’t rule it out entirely.
Higher than expected spring peaks are the result of several factors looking backwards and forwards. Look back, there is no doubt that the market continues to benefit from the lingering effects of winter weather. Cattle carcass weights are running about 22 pounds lighter than one year ago. In the most recent week, lighter carcass weights offset two-thirds of a 4.6 percent increase in slaughter and resulted in only a net 1.7 percent increase in beef production. The result is that feedlots are quite current and light carcass weights are helping them stay that way. That fact and lower feedlot inventories takes off some of the normal seasonal pressure on boxed beef prices going forward.
Combine these fed cattle and beef supply factors with stronger beef demand and we have higher than expected prices. There are several anecdotal indications of stronger retail and restaurant beef sales, bolstered by a recently reported restaurant index that reached the highest level in 27 months in February. The strength of demand trends is hard to anticipate. Uptrending demand could more than offset seasonal supply pressure resulting in continued increases in boxed beef and fed cattle prices through April and into May and June.
A more likely scenario is stronger beef demand sufficient to plateau beef and cattle markets for a while before the normal June peaks in slaughter and likely recovery in carcass weights catch up with the market and pressure prices seasonally lower. Maintaining current beef market gains Post-Easter will be important and, if successful, may carry the boxed beef market into the first part of May until Memorial Day beef buying is completed. Time will tell. Starting from higher than expected spring peaks and with continued demand growth, the summer lows could well be less pronounced than usual.
Feeder cattle markets, on the other hand, have benefited not only from stronger fed cattle prices but excellent grazing potential in the face of tight feeder supplies. The first planting intentions reports suggests that corn producers intend to plant plenty of corn acres and that should help keep feed prices under control. However, spring field work and planting preparation is already behind and we have a long time to speculate about possible crop problems. This is likely to result in volatility in feed grain markets and that is the biggest risk to feeder cattle markets. Unless feed markets rise up as a big issue, positive demand and supply factors would suggest that feeder cattle prices are likely to face less seasonal price pressure than normal in the second half of the year. It is entirely possible that heifer retention could increase this fall further limiting feeder cattle supplies and supporting prices at the end of the year.
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