Current cattle markets can be thought of as a series of bad news-good news stories. The bad news is that cash fed cattle prices pulled back last week from the highs at the end of the week before. The good news is that the jump up to $124/cwt. live fed cattle prices was not expected and the current level in the $120-121/cwt. range is at or above most expectations for fed prices at this point.
After an unexpected run higher, live cattle futures prices also pulled back last week from highs the week before. Nevertheless, Live futures are still offering attractive levels to lock in fed cattle for the spring. It’s not clear if cattle futures are simply making a technical correction and some profit taking but the long speculative position in the markets makes it vulnerable to move lower. The opportunities currently offered may be fleeting.
A similar story exists for Feeder futures with recent moves lower from unexpectedly high peaks in early November. The good news is that moves lower have thus far been quite orderly and spring contracts remain at levels that offer unusual opportunities for feeder cattle producers to lock in attractive margins. As with Live Cattle futures, current Feeder futures are built on long speculative positions that could turn and allow an abrupt and sharp drop. The opportunity is there but may be passing.
Cash feeder cattle markets have remained unseasonably strong this fall…bad news for stocker buyers but good news for cow-calf producers. However, as noted above, even at current calf and stocker prices, good margin opportunity exists currently for stocker producers. There is certainly downside risk so risk management is advised.
There is bad news in that cattle slaughter is higher than last year reflecting the growth in cattle numbers the past three years. The good news is that steer and heifer carcass weights are sharply lower than last year and are offsetting a significant amount of increased cattle slaughter in 2017. The upcoming cattle on feed report is expected to show another month of large placements in October. This is certainly consistent with the strong feeder prices and larger feeder market volumes this fall. The good news is that feedlot marketings remain strong as well and are limiting growth in feedlot inventories.
In the bigger picture, the bad news is that feeder cattle supplies will continue to grow into 2018 and beef production is expected to increase another four percent year over year, on top of a roughly four percent increase this year from 2016 levels. Combined with increased pork and broiler production, total meat supplies will be larger in 2018. The good news is that strong beef demand, both domestically and internationally, has supported cattle and beef prices in 2017. At the current time, retail beef prices are holding close to year ago levels with boxed beef and cattle prices at all levels higher than this time last year.
In general, it seems clear that the good news outweighs the bad news in current cattle markets. However, there will continue to be uncertainty and challenges in the continuing cattle market demand and supply dynamics.