Cattle Market Getting Knocked Around by Outside InfluencesMon, 11 Oct 2010 15:15:57 CDT
According to Oklahoma State University Extension Livestock Market Economist Dr. Derrell Peel, continued erosion of boxed beef values over the last month is squeezing packer margins and pressuring fed cattle prices back into the mid $90 level. Painfully slow economic recovery has left domestic beef demand stagnant, especially for middle and the restaurant sector. Recent restaurant performance indicators have shown that business has remained virtually unchanged in recent months. Fortunately, strong export demand has continued to support wholesale beef values as it has for the past nine or ten months, helped recently by a weaker dollar. Recent improvement in the stock market is positive but is overshadowed by lingering high unemployment and weak macroeconomic psychology.
At the same time, latest USDA crop reports suggest a significantly smaller corn crop due to lower than expected yields. Current projections call for crop year ending stocks of roughly 1 billion bushels, a level that provokes the market to begin rationing corn. The concern is not that we will run out of corn- markets will raise prices enough to ensure that doesn’t happen, but who will be bid out of the corn market.
Cattle feedlots, in particular, are caught in a vice in this market environment. Even before this latest corn market news, feedlots were looking at breakevens approaching $100/cwt in the fourth quarter based on higher feeder cattle costs this summer. Now the prospects of significantly higher feed costs will push breakevens higher still. And, while high corn prices will dampen feedlot demand for feeder cattle, limited feeder supplies will likely limit any significant feeder price relief for feedlot purchases. Feedlots will continue to make what adjustments they can by continuing and emphasizing trends already in place such as placing heavier weight feeders and reducing days on feed.
On the positive side, these market conditions will continue to send strong signals to stocker producers to utilize forage-based gains to add weight to feeder cattle. The price rollback for added pounds on feeder cattle is already small and may get smaller still, making stocker value of gain even higher. There is opportunity for more creative stocker and backgrounding programs and some confinement and semiconfinement programs may be more feasible now than at times. For cow-calf producers this means that retained ownership of calves into stocker/backgrounding programs should be evaluated.
Specifically- talking about the calf and stocker market- we feature comments from OSU Extension Livestock Market Economist Dr. Derrell Peel on today's Beef Buzz.
The Beef Buzz is a regular feature heard on radio stations around the state on the Radio Oklahoma Network- but is also a regular audio feature found on this website as well. Check out our archives for older Beef Buzz shows covering the gamut of the beef cattle industry today. Just click on the Beef Buzz button found on the left hand side of any page on this website.
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