Livestock Marketing

Livestock Market Comments
Cattle Price Explode Higher

 Think About Risk Management!

May 4, 2017                                      Volume 12, Number 13

David P. Anderson
Professor and Extension Economist
Livestock and Food Products Marketing


 

Fed cattle traded in the mid-$140s this week, up $8-$9 more than last week!  A few cattle sold this morning at $149!  Briefly looking at past weekly price data using the weekly weighted average 5 market price series I found 2 larger weekly moves, the weeks ending January 3, 2016 (up $10.55) and October 19, 2003 (up $12.72). Fed cattle prices are up about $20 per cwt since mid-April.  While I am reminded of Alan Greenspan talking about irrational exuberance, there are several things going on to contribute to this wild ride.

    • For some months the market has experienced very good demand for fed cattle. Packers have used their profits to buy cattle.
    • The good demand for fed cattle has led to pulling cattle ahead, leading to sharply lower average dressed weights, and relatively tight supplies of cattle. The result is beef production very close to year ago levels.
    • Given that Memorial Day is in our sights, it seems pretty clear that retailers have been caught short and need supplies, as do packers. Buyers have to have supplies to sell, so it can create a situation where the price doesn’t matter, you have to have it.

What should we take from this?  High prices will ration quantity demanded.  Rationing may very well kick in ahead of Fourth of July holiday buying.  But, near term the market will continue to have relatively tight supplies.  The number of cattle on feed is only up about 0.5 percent from a year ago.  So, there isn’t a huge supply surge coming yet.  The last cattle on feed report indicated that there were fewer steers on feed than a year ago, but more heifers.  The mix of those animals will mitigate production growth because heifers are lighter in weight than steers and will make up a larger percentage of cattle slaughter.

It’s worth thinking back to October 2003.  That Fall booming beef exports, tight supplies of fed cattle, and a ban on Canadian cattle imports led to fed cattle jumping $12.00 per cwt in one week and to fed cattle crossing the $100 threshold for the first time.  But, remember, the next week fed cattle gave back $11 per cwt of that increase.

Risk Management

Feeder cattle futures for the Fall hit $160 this morning, but by afternoon have given it all back.  At this writing, October feeders have closed down $3.80 to $153.  This is the time to seriously consider acting to get some price protection for the Fall.  Look at futures, options, or sales for future delivery.   Not long ago Fall feeder futures were in the $120s and that was a good chance to do something also, and the market only went up from there.  Remember, pigs get fat and hogs get slaughtered.  Let’s get fat, not slaughtered.

 

 

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