Marketing

Strong Feeder Prices Predicted This Fall

By Jeff Stolle

As I pen this in very early August, cash fed-cattle markets have rebounded considerably from early summer lows, which coincided with the most numerous fed-cattle numbers of the year in Nebraska and other Corn Belt feeding states. Regular and recurring winter weather events throughout the Plains and the resulting poor feeding conditions well into the spring of 2007 led to many fall 2006 placed calves getting an extra two to four weeks of feed in an attempt to obtain projected finish weights. Therefore, many May-projected calf feds were ultimately shipped in June – along with an already generous supply of June-projected calves that were placed at lighter weights. The result was the second largest number of June fed cattle offerings in the now 15+ year history of the NC/MRS cattle-on-feed data set – and a precipitous drop in fed cattle prices during the month. After giving up $9/cwt on a live basis and $15/cwt on a dressed basis during June, fed-cattle values rallied sharply during the first week of July and have remained near the $90 mark since.

With October ‘07 through April ‘08 CME live cattle trading in the upper $90s to $100/cwt, it seems safe to assume that the June sell-off put a low in the market for this year. The only supply challenge during the late summer and early fall will be the ability of southern Plains feedyards to work through spring-placed wheat yearling numbers over the next 90 days. However, tightening showlists in Nebraska and Iowa during August through October should lend good underlying support to the trade since $95-$100/cwt breakeven levels and good grazing conditions throughout much of the country have resulted in more empty pens throughout the MRS trade area this summer than have been seen in quite some time.

The trend will be toward shorter weekly showlists north of I-70 and longer lists on the southern Plains (especially in the Texas Panhandle) for the next couple of months, since the vast majority of feedyards in the MRS trade area have now cleared their seasonal bulge of calf-fed numbers. Meanwhile, many Texas Panhandle yards will soon be working into considerable numbers of April- and May-placed yearlings (many of which came off of winter grazing weighing 850+ this year). Fewer cattle coming off of wheat pasture during the March through May timeframe made their way into Nebraska feedyards this year due to a lack of open pen space at that time.

It seems likely that the fed market can trade primarily with a “9” front figure for the balance of the year as long as packers can continue to make progress in re-opening key export markets for beef and domestic demand remains strong. However, I must note that the industry has yet to prove that the consumer – domestically or abroad – is willing to buy beef over an extended timeframe at levels that support $98-$100/cwt fed-cattle prices. Furthermore, excellent grazing conditions throughout much of the Plains and western U.S. this year will likely lead to an ample supply of heavier grass yearlings to be placed in August and September, which will finish in December ’07 to February ’08.

Feeder-cattle prices have rallied considerably since late June, as record corn acreage and widespread thoughts of a 12.8-13+ billion bushel crop have pulled cash corn prices back to the $3.20-$3.40 range throughout much of Nebraska and Iowa. The pull-back in corn prices and the big premiums in deferred live cattle futures have combined to push eight-weight steer yearling prices back into the $115-$118 area in many northern Plains sale barns, and considerable numbers of six-weight northern steer calves for fall delivery have been marked in the $117-$123 range on early summer video auctions. Unless corn prices post a serious rally, feeder-cattle values appear set to remain strong for the next few months as feedyards compete to fill a considerable number of empty pens from the Texas Panhandle all the way to South Dakota and Minnesota. Interestingly, the premiums offered in deferred live cattle issues as I write this are offering cattle feeders as good a risk management opportunity on mid-summer placements as has been seen in quite some time, in spite of the $97-$98 breakeven levels of most of the feeder cattle currently being offered.  Y  Jeff Stolle is NC’s vice president of marketing.