CattleFax sees continued high prices, support from feedstuffs markets

In the June 10 Trends+ CattleFax webinar, Analyst Mike Murphy noted that prices continue to be high currently, but those marketing cattle should expect to see bigger inventories of calves in January 2016-17.

“At this point in time, as we look at the conditions in the eastern two-thirds of the U.S., it looks ripe, with the feedstuffs and grass conditions, that we will continue with accelerated expansion going forward,” Murphy noted.

Corn markets

An integral part of cattle production is the price of corn and other feedstuffs, and Murphy said, “Corn supplies are adequate at this point in time.”

“Hopefully Mother Nature continues to cooperate and we can get a good crop this summer to keep corn prices continually favorable,” he continued.

Both the fed cattle and feeder cattle markets have continued to maintain their seasonal price patterns, and Murphy expects fed cattle to get a little softer and feeders to continue slightly higher moving forward.

In looking at supply and demand for corn, Murphy mentioned that USDA has predicted 89.1 million acres to be planted in the 2015-16 crop year, which ends Aug. 31. USDA also predicted that yields will hit 166.8 bushels per acre.

“We also have a carryover of 1.8 billion bushels,” he said. “Production is expected to be about 13.6, for a 15.5 billion bushel crop.”

On the demand side of the equation, demand is projected at 13.7 to 13.8 billion bushels, which would result in ending stocks of approximately 1.7 billion bushels.

“Supply is projected to be a smidge smaller going into this next marketing year,” Murphy said.

Price impacts

“Last fall, we had values that got down to $3.20 per bushel,” Murphy explained. “In the current supply situation where we are looking at 12 to 13 percent stocks-to-use ratio, we should have corn that moves into the $3.20 to $3.40 per bushel level as we look toward the third quarter and into fall.”

He further mentioned price risk is lower, with the market situation today, which will continue to be favorable for cattle producers looking to sell feeder cattle and calves.

Hay values

“There is a good correlation of the value of hay and corn over time,” Murphy added. “Most of the time, hay in the U.S. trades on average between $120 and $150 per ton.”

With drought and regions with higher hay values, Murphy noted that other regions could see cheaper prices – possibly in the $100 to $100 range – where moisture has been prevalent.

“We also have to measure the quality of the product on the market,” he stated. “Some of the hay may not get put up quite as well as we would like it.”

“Overall, from a grain, hay and forage perspective, we feel good about what we are expecting to find relative to the market and what that should do from a price standpoint to keep the demand for feeder cattle and calves strong, knowing that we are going to have a cheaper cost of gain.”

Cattle herd expansion

“Relative to the forage situation, if we look back at June 1, 2014, we had an environment where we were really able to start to see the expansion take place as beef cow slaughter started to reduce,” Murphy mentioned. “That continued through 2015. We are truly in an expansionary phase.”

Not only is the beef cow sector indicating expansion, the number of heifers as fed cattle also indicates expansion.

“More heifers are being retained,” he said. “We are in the midst of an expansion and that has continued and accelerated into the first half of 2015. Our expectation is that it will continue all the way through the second half of the year.”

Longer term

In taking a longer term perspective and looking toward the 2016-17 calf crop, Murphy noted that larger inventories of calves will be prominent, resulting in a total cowherd increase by as much as 1 million head in 2016.

Looking at the market towards the end of the year, Murphy said, “We are on track to find lows relative to this market going into the summer timeframe. We will likely see the market catch somewhere in the $148-$150 level.”

He noted prices will likely begin to track higher into the fall.

“What will be really important is to monitor the number of cattle we harvest through this summer window,” he continued. “The number of cattle we place through the same period will start to dictate supply in the fourth quarter.”

Murphy mentioned that the feeder market has been seasonal, and the feeder industry continues to buy in negative margins.

“As we look forward, we should spend a lot of time trading between the low $220s and low $230s as a defined range on the market,” he said. “For the most part, that will be attractive in terms of selling feeder cattle.”

For the calf market, Murphy mentioned that fall prices are expected to be a little softer as many producers sell their cattle in that season.

“Looking at the 550-pound calf price, we spent the bulk of the time at $280-plus in the last few months,” Murphy said. “We would expect the spot market value will get a little cheaper in the fall.”

Volatility

In presenting a narrow range for price predictions, Murphy mentioned that volatility of the market will continue to be key.

“All of us understand that the volatility is probably great,” he said. “We can widen that from the upper teens to the mid-230s. For the most part, we will be seeing solid levels looking forward.”

This CattleFax Trends+ webinar was sponsored by Elanco.

Saige Albert is managing editor of the Wyoming Livestock Roundup and can be reached at saige@wylr.net.