CATTLE MARKET REVIEW

Last Week

COMMENTS

Cash cattle prices were sharply higher in January across all classes (figure 1). The nearby live cattle and deferred feeder cattle futures prices are also sharply higher with the other months steady. Note that the .pdf version has data tables for monthly prices and basis levels. The weekly stocker cattle prices are been trending seasonally higher also (figure 2).

The NASS Cattle report confirmed expectations for smaller supplies of cattle in both the short and longer run. The total U.S. inventory of 93.7 million head was lower than a year earlier. The inventory in South Dakota increased slightly to 3.8 million head. The increase in South Dakota is driven by feeder cattle outside of feedlots. The U.S. trend has been for smaller inventories since 2007 (figure 3). Canada’s inventories have declined since their peak in 2005. Beef replacement heifers continue to trend lower in both countries. Thus, the overall supply of cattle will continue to contract in the short run at the national level with pockets of expansion possible. More details on the U.S. and South Dakota inventories are available in Economics Commentator No. 514.

The situation for cow-calf producers continues to be mixed. Fundamentally the smaller national cow inventory levels suggest that calf crop numbers relatively low for the next couple of years. However, costs continue to increase so higher returns are necessary to encourage expansion. Grazing fees in South Dakota increased for 2009, but at a slower pace than in recent years. The cow-calf rate was $25.60 per month in 2009. Nationally the low calf prices and higher input costs resulted in cash losses for cow-calf producers in 2009. The USDA baseline projections had a loss of $25 per cow in 2009 (figure 4). Cattle inventory levels are expected to reach a cycle bottom in 2011 before expanding slightly from 2012-2014. Cash returns are expected to turn positive in 2010 without a major rally in subsequent years. The USDA does not foresee calf prices increasing sharply until 2013.

In the Cattle on Feed report the total on feed continues to remain below year ago levels. Inventories are relatively high in Iowa and Oklahoma. The smaller on-feed total is partially explained by a sharp increase in cattle grazing wheat pastures. When these cattle enter feedlots they will likely bump up the placement weights in the southern feedlot states. The February report is an annual summary and includes breakdowns by feedlot size. Capacity increased slightly during 2009 to 16.8 million head as of January 1, 2010.

The latest WASDE fed cattle price projections were revised slightly lower, and the nearby futures prices are now well above the projection range (figure 5). The situation reverses during the second half of 2010 were some upside potential still exists reflecting fewer cattle to replace those currently on feed. The volatility in the market has fallen or trended lower in recent months. This makes protection strategies using or tied to options relatively inexpensive. Following the release of the Cattle numbers, the projections for feeder cattle prices from the Economic Research Service were also revised slightly lower (figure 6). The decline in feeder cattle outside feedlots was not as large as expected. The nearby futures price continue to trade higher than the projection range with the deferred contracts are trading within the range.

In the Chute:
March 31: Prospective Plantings (NASS)

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