Long summer for the cattle market, analysts say
With big placements in feedyards, heavy winter weight gains, and no apparent trade border openings with Japan or South Korea, industry experts see a long summer ahead for the cattle market.
This winter, the same dry , lousy conditions for growing wheat were wonderful conditions for growing cattle. As a result, more cattle than normal were pushed into feedlots early.
USDA, in its cattle-on-feed report last week, estimated a 5% increase in February cattle placements compared to a year ago.
To make matters worse, a mild winter in the U.S. has sparked an exceptionally good rate-of-gain performance in the feedlots, analysts said.
Paul Hitch, operator of Hitch Enterprises feedlot, said lots are now pressured to get current with weights and population.
"The gain is good news from the sense the cost of gain was attractive this winter. But, it's bad news that all those extra pounds are going to come on the market. Cattle weights are higher, carcass weights are higher, and all of those extra pounds are pounds of meat that have to be merchandised," Hitch said.
Dressed cattle weights are 31 pounds over year-ago levels for the week ending March 25, according to USDA statistics.
Meanwhile, a standoff between the meatpackers, wanting to pay less for cattle, and the producer, asking for higher prices, is underway. Hitch said the direction of the cattle prices would be determined by who blinks.
"The packers have lost an incredible amount of money in the past few years are cutting their weekly kills back to improve margins. So, they are going to do every thing they can to force this market down. As producers, we are in a box where we need to sell a lot of cattle to work through the additional tonnage. In order to do that, we have to take lower prices."
Hitch added, "In my opinion, the packers have the traction and they will try and force this market lower and probably will get it done in the next three to four months."
Hitch suggested producers are facing trading lower prices now for better prices in July. He thought that could be a trade that some producers may be reluctant to agree to.
"I would make that trade because I have cattle ready to sell now and in July. But, the producer that only has cattle ready for sell now, might not take that trade," Hitch said.
Meanwhile, prices of competing meats for the grilling season are expected to apply additional market pressure in June and July. Plus, with poultry consumption down worldwide due to the Asian bird flu, U.S. companies are lowering poultry prices to reduce supply.
Keep in mind that cattle prices are normally lower during the summer months, Hitch said. "It looks like this year will be no different."
Reopening beef trade with Japan and South Korea is months away, industry analysts said.
Dan Vaught, AG Edwards analyst, said the industry would have to continue to live without those markets.
"Obviously, it would help a great deal if the South Koreans and Japan would resume their roles of major buyers, Vaught said. "Realistically, even if they did we don't expect meat to start moving that quickly. Hopes to that effect are not high."