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Fires and Prices

Written by Dennis Sun

Visiting over the fences and along the county roads the past week, the two topics that always come up are fires and prices for livestock. Those topics could come up during most any summer here in the state though.

The fires we have had lately have just been devastating, with loss of homes, barns, fences and livestock and other related accidents. If the truth is known, it could happen to any of us. Keep the victims in your thoughts and prayers and support them.

Moving on to prices, awhile back I read an article by Don Close, vice president of Rabobank Food and Agribusiness Research and Advisory Group. I always like to read predictions and reasoning of price fluctuations in past and future months by bankers. They’re usually right on.

Sometimes I’m kind of a “roll the dice” guy, a “gut feeling, let’s move on it” person. Bankers are not that way. Come to think of it, I hope my banker doesn’t read this column. I could be doomed. Bankers don’t gamble or take chances, and that’s good. We sure want the financial people in our lives to be rock-solid type of people. People like Close, who study what has happened and what should happen, are usually right, and that’s why they get the big bucks.

In the cattle markets, we’re all wondering what is the bottom? That is the big question.

Close says, over the last six months, faster than expected herd rebuilding and larger than expected supplies have contributed to price erosion in all classes of cattle. Prices in all weight classes of cattle have declined significantly and are currently trading in proximity to 2013 price levels, therefore, cancelling out the gains seen in 2014 and 2015. The result is a notable slowdown in expansion.

He said that there are two exceptions to the price erosion, retail beef prices and cutout values. The increased slaughter rates are not only driven by increased monthly placements since the first of the year, but also reflect cattle feeders taking an extremely aggressive position on marketing cattle. A third influence for the larger than expected beef slaughter has been the increased beef cow slaughter

You know, feeders and others who bought calves when they were really high, suffered some heavy losses. They say some feeders were losing up to $700 a head during one quarter. That can’t keep happening.

Close says there are two primary explanations for the revised outlook for beef cowherd expansion that they expect could peak in a range of 31 to 31.5 million head. The first explanation is that the rate of heifer retention starting in 2014 has been far more aggressive than they imagined. They expect heifer retention to continue in 2016 and 2017 but at a substantially slower pace than the previous two years. As a result, the current expansion is very front-end-loaded.

The second indication of slowdown has been the larger than expected cow slaughter for the year to date. They also thought beef cow slaughter would be down and dairy cow slaughter would be up, but the opposite was true.

As always, supplies of beef, pork and chicken, export numbers, the futures markets and concerns over production are always in the equation. Stay tuned. It could get rocky, but most say there are some positive signs out there.