Content ID

45995

Cattle Party: Is It Over?

Are the good times coming to a close in the cattle business?

Probably not, but the easy money may be behind us. So say the cattle market gurus at CattleFax, the major market analysts to the industry. Before several thousand attentive and smiling cattlemen this week at the National Cattle Convention, they said the highs in the cattle market were probably made in the last quarter of 2014. That doesn’t mean things will fall apart this year, but don’t expect fed cattle to go to $1.80 per pound again, or feeder calves to surpass $3.00.

Here are the highlights. 

Cattle and Calf Markets

Fed cattle should average in the mid $1.50s a pound, with lows of $1.40 and highs touching $1.70. The problem for feedlots, which sell fed cattle, will be the margin squeeze. They have been selling feds for some very high prices, and feeding relatively inexpensive feed. But with excess feedlot capacity, most of the profit potential gets bid into feeder cattle prices. Last year in the midst of continually rising markets, feedlots averaged $200 per head profits, the best in history. Because the price of the feeders has now caught up, that won’t happen this year.

Plus, says Randy Blach, CEO of CattleFax, while the fed cattle market over-achieved last year, it’s set up to under-achieve this year. In the ongoing negotiating between feedlots and packers over the value of finished steers, feedlots had the upper hand last year due to short supplies and strong demand for beef. Feedlots used that leverage to extract most of the negotiating premium – as much as 10 cents a pound. This year, the packers will get that back, Blach thinks. “With cheaper feed and tighter margins, I also think we’re going to see cattle left on feed longer this year, to heavier weights, adding more tonnage to the market,” he says.

Blach thinks feeder cattle (750-pound basis) will average in the area of $2.20 a pound this year, and calves (550 pounds) will be at $2.60. “I think the highs are here right now with grass coming on, and we’ll drift lower into fall. Cow-calf producers are still going to do really well for the next few years, but cattle expansion is beginning to happen.”

Cow Expansion

Kevin Good of CattleFax says the reason for the big run up in cattle prices is easily explained by the 2.25% drop in cattle slaughter for last year as a whole. “That might not sound like much, until you consider that is 9,000 head a day,” he says. He also gives two solid indications that expansion of the cow herd is ongoing: cull cow slaughter last year was down 14% from the year before, and heifer slaughter was down 18%. “Heifer slaughter as a percentage of total slaughter was the lowest in 20 years,” Good says. The latest USDA cattle inventory report released last week confirmed the trend: there are 600,000 more beef cows in the nation’s herds than last year.

While total beef production may be down 1% again this year, total meat production should actually increase by 3%, thanks to major expansion in pork and poultry. Both of those meats hit production lows last year, helping set up the “perfect storm” of high prices. That won’t repeat in 2015, says Good. “We’re building protein supplies.”

Demand for meat is strong, he continues, giving at least some credit to falling gasoline prices. “Consumers are saving an average of $600 per vehicle this year, and there’s a pretty strong correlation between that and the amount of money they spend on food service.”

Grains Outlook

Mike Murphy of CattleFax predicts that grain supplies are going to stay ample for the foreseeable future, meaning the cost of cattle feed should stabilize. He expects corn acres to be slightly lower in 2015, and soybean acres to take up the slack. Still, with expected good growing weather, we should produce a 13.5-billion-bushel corn crop. The price from now into early summer should remain in a range of $3.50 to $4.25 per bushel on nearby futures, then drift lower towards $3 in the last half of the year. Murphy also expects ample hay supplies and stable or falling prices.

Read more about
Loading...

Talk in Marketing