Wareham: Markets Suggest Cautious Optimism
We’re finally on the backside of the cattle cycle. Calf crops are getting smaller, and the inventory of 2019 and 2020 born cattle on feed continues to shrink. Further, new crop calves have been strong on about every major video sale. Optimism continues to grow.
Widespread drought will undoubtedly play a role in the short- and long-term fundamentals. With feed resources tight, an excess of light calves will likely hit the market sooner than normal. After the struggles in cattle feeding the past two years, one must wonder about grow yard capacity. Will there be enough to support a potential rush of light calves?
Procurement strategies are likely to evolve quickly. Some procurement managers that are averse to high-risk, drought bawlers might choose to be aggressive, filling pen space with forward contract cattle that sell guaranteed 45 to 60 days weaned if they foresee price strengthening for similar groups. A larger “pre-buy” strategy might lower the risk of getting stuck having to fill larger percentages of pens on a strengthening spot market for long weaned calves. Or, filling them with high-risk cattle.
Summer video sales have shown there is a strong demand for new crop calves. If you are fortunate enough to have the luxury of both time and feed on your side, these buyer trends will be something to watch closely.
I believe there are a few wild cards, commodity prices being the most significant. How good will the 2021 corn crop actually be? Are modern genetic lines of corn environmentally tolerant enough to thrive in conditions that might otherwise decimate a crop? These factors could greatly affect cattle growing rations.
The other wild card is the growing volume of beef dairy crosses. They’re not new cattle, so their volumes aren’t additive to total national supplies. However, their presence is disruptive to the historical distribution of quality. Due to feeding and harvest performance advancements through genetics, they have begun displacing poorer groups of cattle. Also, they are born 24/7/365 nationwide, which allows them to fluidly fill historical supply gaps.
After analyzing the potential hurdles mentioned above, there is still plenty of reason for optimism. Supplies are tightening. Drought will magnify that to some extent. Many ranchers intend to retain ownership through slaughter. Fed cattle contract pricing for program cattle that will deliver in March, April and May of 2022 has risen sharply over the late summer months. That signals a shortage of quality program cattle, but does it start to suggest the April board isn’t as oversold as many think? Does this mean, no bad days from here on? Nope, but the market is coming to the ranch and feeder with plenty of opportunity on the horizon. That’s a welcome sight and a blessed feeling.
Jared Wareham is the North American business development manager for ABS NuEra. He has been involved in the cattle industry for over two decades, in business development roles growing genetics-focused companies
that service producers along the beef value chain by driving the integration of precision-based production.
