Weather May be Cold but Cattle and Beef Markets are HotMon, 06 Jan 2014 10:22:14 CST
Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist writes in the latest Cow-Calf Newsletter:
The holiday season is not typically a time when markets make dramatic moves. However, fed cattle prices going into Christmas were just over $130/cwt. and emerged from New Year’s at over $137/cwt. late last week. Fed cattle prices advanced the last week of December despite a fire that idled a Cargill plant that week and further reduced holiday-diminished slaughter schedules. Choice boxed beef prices have increased roughly $4/cwt. since before Christmas. The Choice-Select spread has also narrowed with Select increasing even more than Choice resulting in an effective average boxed beef price increase of about $6/cwt. For packers, the increase in boxed beef is not enough to compensate for the fed cattle price increase meaning that packer margins continue to be squeezed. In the last four weeks, both cattle slaughter and boxed beef production have been down roughly 4 percent. Carcass weights are close to year ago levels, with steer and heifers carcass weights down and cow carcass weights up due to high proportions of dairy cows in the cow slaughter total.
It will likely take another week or so to fully assess post-holiday beef markets. The massive winter storm affecting the eastern half of the country this week will have additional impacts on both beef supply and demand. The fact that most major cattle feeding regions are not being affected by big snow totals will reduce the impacts but the cold temperatures and temperature swings will affect animal performance and hold carcass weights in check. Snow is heavier from the eastern corn belt through the northeast and, combined with brutally cold temperatures, will likely reduce beef demand and product movement for a few days.
Fed cattle prices have jumped much more than expected and raises the question of what to expect next. Current fed prices are already above spring prices as indicated by Live Cattle futures. Is this an early peak or can we expect additional first quarter strength in fed prices? I think it unlikely that we will see a continuation of the current rally in the next few days. Reduced slaughter and carcass weights, perhaps aggravated by weather impacts will tend to support prices close to current levels but packers will certainly resist higher fed prices unless boxed beef continues to move higher. Fed prices may move mostly sideways for the near term but the potential exists for prices to push towards $140/cwt by the end of the first quarter. In contrast, current April Live Cattle futures would suggest we are already at the spring peak. Boxed beef prices and winter weather will both be key factors to watch in the first quarter.
Feeder cattle markets have been mostly closed the past two weeks so market trends are difficult to assess but indications are that prices will be strong as markets reopen this week. Higher fed cattle prices are supportive, though adverse weather may temper feeder demand the next few days. Wheat pasture conditions have been marginal in some areas and may continue to deteriorate with the cold weather provoking some early movement of stockers off wheat but neither the numbers nor timing is likely to pressure feeder markets significantly.
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