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Cattle Markets: Love ’Em, Hate ’Em

No farm market is as fickle as the cattle market. It loves you one day – it hates you the next.

Last year, cattle ranchers were enjoying their best times in history, with record-breaking prices in all segments. Fed cattle got to $175 per cwt; weaned steer calves were $300 per cwt.

For feedlot operators especially, those sweet memories are now painful. Starting last summer, the fed market completely fell apart, and it now hovers near $130 per cwt. On a per-head basis, the difference between loves you and hates you is $600 per head for a finished steer.

When the fed market falls, it drags the other segments with it. At the beginning of 2016, feeder cattle (750 pounds) were about $160 per cwt and weaned calves (550 pounds) near $2.20.

At the 2016 Cattle Industry Convention, ranchers who were giddy last year were now licking their wounds. There was much talk of fed cattle going to market in early 2016 with close-out losses of over $500 a head. 

Tyler Cox, a cow-calf and stocker operator from Washington state, told a seminar audience that he was upside down by that much on some calves he bought last summer. “I thought I was pretty smart then, but not so much today,” he said.

At the annual cattle market outlook session, specialists from the market-watch firm CattleFax confirmed his pain and outlined the perfect storm of events that brought it about.

Much more meat. Pork and poultry now cost about half as much as beef at retail. Both of those competing industries have lived through major disease outbreaks in the last two years (PEDV for pigs, avian flu for poultry). 

When times turn good, it’s amazing how fast they can crank up farrowings and hatchings. They jointly increased production by 3 billion pounds in 2015 – 10 pounds more for every person in the U.S. Total meat production – beef, pork, and poultry – set a record in 2015. 

When grocery store beef prices averaged $6.15 a pound last summer and pork and chicken were 40% to 50% less, it finally priced beef out of consumers’ budgets, said CattleFax CEO Randy Blach. 

Leverage shifts. With tight meat supplies early last year, feedlots had the bargaining chips and could hold out for higher fed steer prices. That alone put $10 per cwt on top of an already good market, Blach said. 

When increasing meat supplies began to hit the market in midyear, though, that leverage completely flipped to packers. This alone explains nearly a $20 swing in fed cattle prices, or about half of the price decline that eventually occurred. 

World currency ratios. The U.S. dollar has been the strongest currency in the world, and it makes U.S. beef more expensive to foreign buyers. Since mid-2014, the dollar has increased in value by 14% against the Japanese yen and 46% to the Brazilian real. That’s a problem because 12% of our beef production is exported. CattleFax said the decline in export values took $118 per head from the pockets of beef producers in 2015.

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