Category: Livestock Marketing

War has contributed to cattle market uncertainty and sharply higher feed costs, record-high cattle on feed, and falling cutout values have hit heavy feeder prices hard.  But, cull cow prices have continued to skyrocket since the beginning of the year, shooting past $75 per cwt in the Southern Plains.  A year ago, 85-90% lean cull cows averaged about $46 per cwt.

Cow prices are increasing in spite of large cow slaughter.  Cow slaughter during the first two weeks of February totaled 145,000 head, or more, per week.  That is the largest weekly slaughter since December 2012.  Beef cow slaughter is extremely large, rivaling peak Fall slaughter levels.  This large beef cow slaughter is coinciding with seasonally large dairy cow slaughter, which typically peaks early in the year. 

High cow beef prices are providing some insight into beef demand.  Both the cow beef cutout and the wholesale 90 percent lean beef for ground beef are well above a year ago, at $229 and $284 per cwt, respectively.  But, wholesale middle meat prices have dropped in recent weeks with both wholesale ribeye and strip loin prices lower than last year.  Consumers may be shifting purchases to more ground beef and fewer steaks in response to high retail prices.

Increasing milk prices should slow dairy culling in the coming weeks.  Beef cow culling is going to be greatly influenced by drought and costs.  The rate of culling over the last year should have already moved older, less productive cows.  Reduced dairy culling should pull down total cow slaughter and support prices in the coming weeks.

Anderson, David. “Cull Cow Prices Skyrocket“. Southern Ag Today 2(12.2). March 15, 2022. Permalink

The Russian invasion of Ukraine has led to far-reaching impacts on commodity markets across the globe. In particular, oil and grain prices have surged which contributes to increases in the cost of production throughout livestock supply chains. Feeder cattle futures prices have dropped roughly $10 per CWT since mid-February depending on the contract (though prices were higher in Monday trading).

 Near term corn prices have jumped by around a dollar per bushel in the past few weeks. As shown in the chart above, the May 2022 CME corn futures contract closed last week at $7.50 per bushel. Higher corn prices generally put pressure on feeder cattle prices since feeder cattle and corn are two primary inputs into producing fed cattle. Poultry and hog producers of course also feel the brunt of higher feed prices. Corn futures contracts expiring further in the future have also increased though not by the same magnitude. For example, the December 2022 CME corn futures contract closed last week at $6.30 which is up about $0.40 above mid-February.

 Cattle prices are caught in the broader uncertainty and market volatility. Many input prices were already high compared to recent years. The severity and length of time that higher feed costs will persist are key questions without good answers. Feed costs (among other inputs) will be higher in the near term. Planting season is just around the corner in the U.S. and the amount of corn planted will be important for supply and price forecasts. 

Maples, Josh. “Higher Feed Costs for Livestock Producers“. Southern Ag Today 2(11.2). March 8, 2022. Permalink

Each year there are opportunities for producers to market feeder cattle near the high-end of the year’s market. Cattle producers will likely be marketing cattle throughout 2022 at the highest prices since, at least, January 2016. While great news, we still need a marketing plan for feeder calves. One useful method is to compare the relationship between the futures price (CME Feeder Cattle Futures) with the current market price (CME Feeder Cattle Index Price). The difference between these two prices provides the market’s expectation of price movement in the short run and expectation of market highs.  Note, this was written just prior to the market fluctuations following the beginning of the Ukraine-Russia war.

Using the current CME Feeder Cattle Index price and the August 2022 Feeder Cattle Futures contract prices, as an example (Table 1.), Friday, February 18^th’s CME Feeder Cattle Index was $162.14 per cwt (Reporting Date: 02/17/2022) and the settlement price of the August 2022 Feeder Cattle Futures Price was $186.08 per cwt.  The market’s expectation is for Feeder Cattle prices to increase from $162.14 to $186.08 per cwt. The market is pricing in a $24 per cwt, $191 per head, and $11,968 per truckload increase between now and the expiration of the August futures contract. Of course, basis adjustments may need to be made for your individual situation.

The futures market expects feeder cattle prices to increase each month during 2022.  Over the last five years, market price highs have occurred during the second half of the year, and that is expected this year, as well.

Prevatt, Chris. “Marketing Feeder Cattle at 6-Year Price Highs“. Southern Ag Today 2(10.2). March 1, 2022. Permalink

USDA’s February Cattle on Feed (COF) report will be released on Friday, February 25^th.  It’s expected to show a record number of cattle on feed in feedlots with 1,000 or more head.  The combination of fewer marketings than the year before and large placements should leave COF at 100.8 percent of the 12.106 million head on feed last February.  

Feedlot marketings should be about 2.7 percent below last year.  Given that there was one more slaughter day in January 2022 than 2021 that is a relatively low rate of daily average marketings.  Placements are expected to be about 98.9 percent of last year.  That would be a relatively large number of cattle placed.  Large placements could be driven by continued movement from drought-affected winter grazing and large sales from the Northern Plains.  Rising fed cattle prices likely encouraged placements also.  About 21,000 fewer feeder cattle were imported from Mexico in January 2022 than the year before, but about 9,000 more were imported from Canada. 

Large placements would indicate another month of pulling feeder cattle supplies forward.  While the result is more cattle on feed today, it also means fewer feeder cattle available later in the year.  The expected tighter supplies of calves and feeders are fueling optimism for much higher calf prices later this year.

Anderson, David. “Record High Cattle on Feed Expected“. Southern Ag Today 2(9.2). February 22, 2022. Permalink

The USDA-NASS Cattle report from January 2022 showed a 1% reduction of cattle grazing on small grain pastures in Kansas, Oklahoma, and Texas (1.71 million head in 2022 vs. 1.73 million head in 2021).  However, small grain pasture conditions are much worse than last year.  

Producers face challenges putting weight on stocker cattle given the overall poor condition of small grains pastures in these areas during this winter. Even though Southern Plains drought conditions improved last week, most areas are still under drought. The Southern Plains will need more moisture for 1.71 million head grazing on small grain pastures.  Although it’s likely that some of these cattle have already gone to feedlots since the inventory survey was completed.

Small grain pasture conditions have decreased considerably this year. In Kansas, winter wheat categorized in very poor, poor, and fair condition is 13 percentage points higher than last year.  Oklahoma and Texas wheat conditions are 45 and 25 points higher, respectively, for similar categories. These areas represent 91 and 84 percent of total winter wheat planted in Texas and Oklahoma.  

Grazing small grain pastures in poor condition will reduce average daily gain and might affect spring productivity. Poor grazing conditions will also increase supplemental feeding costs and mitigate future stockers’ margins.

In some areas, stockers are grazing deferred summer grasses. These cattle will probably have a lower daily gain unless supplemented. However, it will increase costs and potentially reduce spring forage supply for their cow-calf operation.  As the drought continues, it’s likely that a significant number of cattle will be sold at lighter weights and earlier in the market. 

Abello, Franisco Pancho. “Cattle Grazing on Small Grain Pastures – Challenges During this Drought Period“. Southern Ag Today 2(8.2). February 15, 2022. Permalink