Peel Says Lots of Turbulence and Mixed Signals Roil Cattle MarketsMon, 09 Apr 2012 12:23:24 CDT
Derrell Peel, Oklahoma State University's extension livestock marketing specialist, says there have been a few surprises in the cattle markets recently, with an imbalance in supply and demand factors needing to find an equilibrium.
Cattle and beef markets have dropped significantly in the last month led by sharp declines in boxed beef prices and Live and Feeder Futures. Cash fed cattle prices have traded erratically lower from highs of $130/cwt. in early March to $122/cwt. last week. Feeder cattle markets have also dropped from recent peaks but, not surprisingly, have seen the least impact and among those the least of all in the lightweight calves and stockers.
The problem seems to lie with demand rather than supply. Cattle slaughter continues well below year ago levels and, despite higher carcass weights, total beef production has been down slightly over the past four weeks. The demand picture, however, is clouded by mixed signals. Primal rib and loin prices, though down in recent weeks, are still above year ago levels. However, Choice boxed beef has dropped below year ago levels in the past two weeks. Certainly, the continuing controversy regarding lean finely textured beef is adding to the turbulence and the current weakness. Decreased value of 50 percent trimmings has decreased carcass values about $40/head, making already negative packer margins that much worse. There is also considerable scrambling in processed meat markets to adjust product flows in both beef and pork markets as a result. Higher gas prices may be one of the biggest factors affecting beef demand currently.
Some of the demand factors should clarify soon. Unseasonably warm weather in much of the country may jump-start grilling demand in the post-Easter period. Uncertainty about export demand may be clarified in the next export data release. The immediate turbulence about lean finely textured beef should begin to clear soon but the overall impact may linger for some time yet. Gas prices and the summer vacation season will play a big role in beef demand as we move into summer. The next few weeks will provide important clues about the demand challenges for the remainder of the year.
Somewhat removed from the immediate demand issues, cattle producers seem to be proceeding with considerable caution and for very good reason. Warm weather and abundant rain have crops and forages ahead of schedule but assessment of forage conditions is an ongoing process. Warm season grasses are just beginning to green up and the amount of damage from last year's drought is yet to be determined. It appears that both introduced and native warm season grasses may have experienced considerable damage. For both production and financial reasons, we have not seen a major demand jump for cows and heifers yet. I expect the demand to grow modestly over the next month or two but the pace of herd rebuilding will likely remain fairly slow in the Southern Plains in 2012. The wheat crop is generally in very good condition but is running two to three weeks ahead of schedule. Harvest is expected to be early and in similar fashion, grazeout cattle will be pulled off of wheat over the next 2-4 weeks.
Peel's article appeared in this week's Oklahoma Cooperative Extension Service Cow/Calf Corner Newsletter.
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