News Update

June 6, 2010

Summer is upon us and the usually lazy days with minimal market moves in the futures is a fond memory. The global currency markets in conjunction with foreign debt markets have created a trading frenzy in the world equity markets, which has spilled over into the commodity futures markets. The volatility has given some producers the opportunity to make prudent trades on hedged cattle and grain from a month ago.

The summer live cattle market is poised to move into the low $90’s and possibly the high $80’s if demand declines and carcass weights increase back to normal levels. Given the negative swap for new feeder cattle and the declining value of corn, cattle feeders have incentive to make the cattle bigger. Basis is starting to weaken which will also cause some to fight the cash, so it is possible that we could become uncurrent going into the 4^th quarter.

Exports are moving higher, even as the dollar rallies against most currencies. Economic activity is improving around the globe and people like our product. If the politicians could get out of the way we would be exporting a lot more meat.

Summer feeder cattle contracting has slowed up with the sharp break in the futures over the last 3 weeks. Almost every class of cattle I have looked at is being offered extremely high, with not much consideration for the $8/cwt break in AUG feeder cattle futures. Corn prices have declined as well, so the cattle have been able to maintain a higher level than most think is reasonable. Feeder cattle are being bought on the come, with the feedlot hoping for a rally in the deferred live cattle futures so at least a break even hedge is possible. If corn continues to weaken, which is sure possible given the acres planted and good weather, feeder cattle will probably move higher over the next 4-6 weeks.

Yearling cattle.

These cattle have slowed up in the forward contracting arena. Several big video sales will happen in the next 4 weeks. A lot of yearlings have already been priced in this area, with the most demand for 9 weight steers coming in late July to early August. Options are still the best strategy to use if you have not priced the cattle, or they were not hedged 4 weeks ago.

Calves.

Contracting has slowed up some as most producers are priced well above breakeven levels for stockers or finish cattle feeders. I think we will see a strong market through the summer on big strings of reputation cattle. The market will probably follow its seasonal trend and move slightly lower into the fall. The market is not going to fall apart unless some outside factor craters the commodities in general. I suggest pricing the cattle in the next 8 weeks and buying calls if you are concerned the markets will move a lot higher over the next 180 days.

As I mentioned earlier, there are a lot of outside factors influencing the cattle complex. Be aware of the world situation and take some money off the table.

Remember, pigs get fed and hogs get slaughtered.

Give me a call if you would like to visit about your marketing situation.

Monty

May 23, 2010

The spring rain is welcomed. In our area the grass is growing and everything looks good. It is a wonderful time of the year.

Let’s discuss the current cattle market. We have witnessed the largest winter low to spring high fat cattle market move in history, $78 to $101. Several factors, almost a perfect storm of events, made this happen.

The harsh winter weather reduced cattle feedlot gains. This reduced meat tonnage on a weekly basis, which reduced the available supply of meat for an extended period of time. There were fewer cattle placed on feed in the 4^th quarter of 2009. Heifer placements close to 40 percent of feedlot inventory. This indicates contraction in the base cow herd, which means fewer feeder cattle over the next 2-3 years. Combine these factors and you have the recipe for supply concerns.

Commodities in general have a tremendous demand globally as economies moved from recession to recovery. Futures markets went higher and higher as producers, packers, retailers and hedge fund managers tried to capture price and supply. Open interest in the spring live cattle contracts was record high, over 350,000 contracts. This number has declined in the last 2 weeks as the trade unwinds positions. Financial concerns around the world have tempered commodity pricing, but I think this is a short lived event.

So, what does all this mean going forward? I expect that all markets will remain volatile as financial and political issues drive prices.

Fat cattle. This market rolled over this week with prices dropping $3-5/cwt. Seasonally it should not be a surprise as supplies increase and demand begins to weaken with summer heat. I anticipate that fat cattle will trade in the low $90’s into the summer with risk to the high $80’s by August. Supplies of ready cattle will increase during this time, as well as carcass weights, so unless demand increases, there will be plenty of beef to meet the current demand. I suggest using options to put a price floor on your cattle, leaving the upside open. The inventory numbers suggest that we could see a much higher market in the late fall.

Yearlings. These cattle have the highest demand of all classes, which is evident by the strong contracting that has taken place already on big yearlings for July and August delivery. I have encouraged producers to price these cattle, in the cash or futures, over the last 8 weeks as prices offered were in excess of most expectations. The futures have declined about $6/cwt in the last 10 days in response to financial market declines, lower fat cattle prices and higher corn prices. I think we will retest the old highs before August feeders expire. Midwest corn farmers with cheap DDG’s have been the major drivers of price and I think it will stay that way.

Calves. Contracting has been active on bigger calves. The summer video sales are approaching and I expect a strong market on fall delivery calves. Top on most calf buyer’s minds is SUPPLY, to meet the EXCESS CAPACITY. Whether it is feedlot bunk space, wheat pasture, roughage or grass, there is more capacity than there are feeder cattle. This is good if you own the cows, several years of profitable operations are possible. I think there will be nothing but negative margins on calves for the buyers of them over the next 2-3 years until the cow herd starts to rebuild.

As far as selling your calves, do not try to hit the absolute high. Price them realistically and sell them if you get it. This market could see some wild moves on a weekly basis. The early video sales tend to set the high in most years.

As always there are a multitude of outside economic factors that will influence cattle prices on a daily basis. Pay attention to them but do not let them rule your marketing decisions. Know your costs and know your pricing point, then make rational decisions based on the facts and move forward.

I left the old column up to remind myself that everything changes. Keep that in mind as we move through the summer months.

As always give me a call or email if you would like to visit about your marketing needs.

Monty