Agricultural News
Feeder Cattle Prices Crater- The Question is Why?
Tue, 03 Jul 2012 12:16:51 CDT
Why have feeder cattle prices been steadily heading lower over the last several weeks? USDA market news reporter Ed Czerwein in Amarillo, Texas has responsibility for writing up the market report for the Superior Video Livestock auction- and he offered a detailed set of reasons why feeder cattle have struggled since late May. Here is his commentary as released on July 2nd on why the bubble has burst on the feeder cattle trade:
"Compared to the last sale Feeder steers and heifers prices for current, summer, and fall delivery were generally $6.00-$12.00 lower following the significant and steady decline on the CME that occurred in the past couple of weeks. All types of feeder cattle markets experienced this massive decline led by liquidation in the CME. Regional auctions and direct ranch to feedlot trades have also been down from $3.00-$8.00 each week for consecutive weeks of losses during the month of June. The unfortunate situation for the video auction is that all of the accumulated losses since the previous auction three weeks ago show up at one time, while the area auctions have posted the same losses just that they have been split up over several weeks. The nearby month for the CME Feeder Cattle option had reached its peak and closed at $161.15 early in June then fell to a $147.70 close on Tuesday during the Video auction putting tremendous pressure on all feeder cattle markets in all regions.
"Feedlots have experienced tremendous losses for quite some time in their closeouts and when the CME Slaughter cattle options continued to decline they were forced to lower bids on replacement feeder cattle. Sky rocketing corn prices in recent weeks have also added to the negative close outs making losses even more substantial which added more pressure to feeder cattle prices.
"Ethanol crush margins have been dismal forcing quite a few plants to close, which although it lowers weekly corn use, it also reduces available wet distillers product for nearby feedlots. Which in turn affects their ability to bid on feeders and contributes to the negative influence on feeder cattle prices. Feedlots in the Northern Plains, which had become dependent on wet distillers product in particular, have become much more cautious in bidding on fall contracts. Their feed costs have jumped dramatically and they are now more in line with costs incurred in the Southern Plains and other areas.
"Feeder cattle prices have been high in relation to the deferred CME Slaughter Cattle prices for some time, limiting the ability of feedlots to utilize risk management tools to lock in a profit of any type. Most feedlots could not even lock in minor losses, which have since turned into massive losses with rising corn prices.
"May feedlot placements were larger than most industry estimates. Increased imports from Canada and Mexico have increased the feeder cattle supply since the first of the year. Mexico imports in particular have been large due to the ongoing severe drought in Mexico and year to date numbers indicate we have imported almost 300,000 head more than the five year average so far this year. Canadian feeder cattle imports are almost twice of what they were this time last year, and are currently around 95,000 head compared to 48,000 head last year. Recent high feeder cattle prices have no doubt helped attract additional imports from neighboring countries and also influenced some Holstein steer operations to switch from veal to feeder cattle production."
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