Fed Cattle Prices Set Record, Taking Out 2014 Levels and The Tightest Numbers Are Yet to Come

Fed cash cattle prices hit record levels in mid-April, with the national weighted average steer hitting $180.29, exceeding the high set back in 2014.  That was followed by April live cattle futures making all-time highs on the continuation chart.  However, market analysts say this cycle is different than the last one in several ways, with some even calling it the bull market of their careers. 

Record cattle prices were expected with historically tight numbers after prolonged drought in the heart of cattle country forced liquidation of the nation’s herd.  However, it came earlier than many market experts predicted, forced by a tough winter in the northern cattle production areas.  Brad Kooima, co-owner of Kooima Kooima Varilek in Sioux Center, Iowa, says, "We were pulled ahead on our yearling crop and because of the severe weather our calves aren’t anywhere near ready that you typically might have in April, and still aren't by the way. This tightness of supply, I think, is finally trumping the packer who needs inventory. We're going into the best demand period of the whole year. The weights indicate how current we are."

This marketing hole may interrupt the normal seasonal pattern for cash prices, which usually peak in the spring and drop off into the summer according to Derrell Peel, livestock markets specialist with Oklahoma State University.  "I actually think because of the underlying trend in these markets, as they've been going up for several months, that we may not see a lot of slump into the summer. Maybe it kind of plateaus here for a few months? But certainly we will continue to move higher and there are more record prices coming ahead in fed cattle markets."  

Kooima says this bull market is much stronger than in 2014 and he believes it could have a longer tail. "2014 around here is known as the bull market of my career until this one, which I think is going to exceed that one because when we get even more extreme numbers and you've got a lot bigger demand than we did in '14.  As long as something doesn't happen to mess up the demand thing, you know, I'm talking about an international event."  

So just how high could fat cattle prices go since the cattle inventory isn’t even into the tightest numbers in the cycle yet?  Kooima says, "If we could take the cash market to the mid-$180s on this run, which I think it looks like we're going to. I do appreciate your point about the tightest supply is not even here yet. The way I would read the tea leaves here, the supply of cattle the first quarter of next year is much tighter than now making the assumption that there'll be enough moisture that will have heifer retention. So yeah, it could get pretty crazy."

The key will be how fast the cattle herd rebounds, which will be indicated by heifer retention.  In 2014, the cycle was cut short as producers quickly expanded.  Lee Schulz, livestock economist, Iowa State University Extension says, "But really a question I think is, does it look like more historical cattle cycles, where we see periods of declines in the inventory and relatively strong prices hold for several years? Or the last cattle cycle, where we bid away those profits and higher prices rather quickly, as we expanded very dramatically?"

However, expansion will be difficult in areas of the Central and Southern Plains where the drought has yet to break, limiting regrowth of pasture or hay ground.  Brad Rippy, USDA Meteorologist, says, "Certainly the numbers we come see coming in from the Central and Southern Great Plains are rivaling some of our worst drought years. If you look at the numbers this week, April 16, pasture conditions coming in from southern plains, we see 58% rated very poor to poor in Oklahoma, closely followed by Texas at 57%.  You have to remember that's a statewide value."

In fact, in Oklahoma, some drought-stricken counties in the north and west had their driest August to March period on record and drought has deepened so far in April. Peel says, "And so these guys are still faced with some additional cow liquidation. I've talked to several producers recently that now recognize that they're going to have to do some additional culling and liquidation in those areas."

That will keep feeder supplies tight and prices well supported.  While feeder cattle futures have hit contract highs, they haven’t taken out the 2014 levels and neither has the cash market.  Peel explains, "Feeder cattle markets are not in record high levels yet, they're moving higher. We're at the highest levels for say Oklahoma cash feeder cattle markets were at the highest level since sometime in 2015. Those markets also peaked previously in late 2014. And we will certainly exceed those highs at some point in time. It may be a few months down the road, but we're going to get there in the coming months."

The other key to regrowth will be profitability.  Cow-calf producers may finally be seeing some black ink, but it's only been the last couple of weeks many fed cattle operations made any money with the headwind of high feed and replacement costs.  Scott Varilek, Co-owner, Kooima Kooima Varilek says, "There was negative closeouts at the $165 levels.  I'm kind of thinking these last two weeks, this rally from $177 to $185 for the northern guys, might actually put some green ink on unless you know there's a few of those horror stories of cost of gains that really got out of line, but there's not a lot of meat on the bone here."

Sustaining this bull market will also rely on demand.  However, the difference between 2023 verses 2014 is that year demand for beef was poor overall with the average choice cutout prices more than 40-dollars below current levels.  Hopefully that will keep the market well supported.