Market impacts – Robb looks at cattle markets during symposium

Loveland, Colo. – Range Beef Cow Symposium XXIV kicked off on Nov. 17 with a look inside the market environment that cattle producers are dealing with today, and Jim Robb, director of the Livestock Marketing Information Center, noted, “We had a 20 percent unraveling in the fed cattle market through last week. We had a rally up, and we are going back down.”

Delayed fed cattle marketing exacerbated the market challenges, he said, explaining that steers weighed more going to the packer.

“We can’t keep delaying marketing our fed cattle,” he said. “We end up with steer weights that are humongous. They’ve come down in the last two weeks, but there are still confirmed reports of steers going to plants weighing over 1,700 pounds.”

Delayed fed cattle marketing created market challenges, he said, explaining that steers weighed more going to the packer, adding more pounds to supply.

“It caught us off guard,” Robb commented. “This is critical.”

Factors

In looking at the many components that influenced the market drop, Robb also noted that supply and demand often rise to the top of producers’ minds.

“The demand side is our consumers,” he said. “They don’t care about the cost of production.”

He added that the U.S. economy is actually growing at a sustainable rate, though recent lack of consumer confidence and news that the Federal Reserve would be raising interest rates pushed the market.

“The problem is, economies around the world aren’t growing,” he said. “Japan and Russia are in recession. China is growing at a pace of about half of what they have in recent years. Europe isn’t growing.”

“This is the world economy interacting with our industry,” Robb continued. “We look around the world, and we are the engine of growth.”

Global impacts

A significant component of demand is the export markets and demand seen from trading partners.

“Exports are struggling,” Robb said. “This is a piece of the puzzle describing why we have reached the point we are at.”

Because key export partners for U.S. beef are in recession and the world economy is not growing at a significant pace, Robb also said that it could be 2017 before growth is seen in exports.

“We aren’t looking for a repeat of 2015 in 2016,” he said. “If we get a positive rebound in exports, we will be all set to play the game.”

On the import side of the picture, Robb noted that imports come primarily from Australia, and he sees a jump forecasted.

“This is a little bit the flip side of exports,” he said.

The import market is supported by continued drought in Australia, and the country continues to liquidate its cattle herd.

“Don’t let people say this is all an exchange rate story,” Robb said. “There is a lot more involved in what’s going on.”

Demand

Delving into demand, Robb mentioned that several components are important, saying, “Demand has two dimensions – not only what people will eat but the price that people will pay to consume the product.”

Consumers are still paying high prices for products, and the demand index hit 94 for the third quarter of the year.

“That is better than the demand profile we have had in years,” Robb said. “Consumers are paying record-high prices and are concerned about pork and chicken. This is really good news.”

While demand is solid in the U.S., Robb noted that markets for the non-meat portions of the carcass, or the drop, are very poor.

“The drop value is five dollars per hundredweight over last year,” he said. “The hide and internal organs are dependent on export markets. Packers were squawking about the returns – not on the meat side but the drop side.”

Current market status

Robb noted that, in the fed cattle market, 2015 is the second highest fed cattle market in history for the fourth quarter of the year.

“Seven- to eight-weights have the same story,” he said.

He also noted, “The unraveling is behind us. We seem to have found some real support in the marketplace.”

In looking at the fourth quarter, Robb noted that the industry is sitting on yearlings, but the upside price potential is limited.

“The worst is probably behind us for fed cattle, but it will be volatile until December,” he commented. “For cull cows, if I am sitting on culls and I have a lot of feed, I might want to look at the economics and the potential price increase in the spring months.”

Robb also looked at calf prices on an annual basis, commented that 2015 marks the peak of the cyclical rise in prices. He also described the calf markets as a “duck head,” explaining that a sharp rise in price leveled off, then dropped dramatically.

“We are now at the bill of the duck,” he explained. “It will go down, but slower now.”

“This fall, if we are selling calves, it will be for the second highest prices ever,” Robb said. “In looking at calf prices, it could be flat, or it could be down $10 per hundredweight.”

“This feels really bad compared to last year, but last year was an anomaly,” Robb said about the recent market drop. “But, this is the second highest cattle market ever right now.”

For feeders, he noted that 2015 will likely be one of the worst years in history.

“We are closing out losses of $300 a head for feedlots,” Robb commented. “The feedlots have taken it in the shorts, and this has got to get fixed.”

Planning

With market impacts also coming from feedstuffs, competing proteins and increased marketing weights, among others, Robb noted that producers must plan for the future.

“Consumer demand is good, but if the U.S. economy starts to slow down, beef prices will go down,” he explained. “We have to be prepared for it.”

The industry must be able to adapt for the future.

“Moving forward, we are probably going to see more seasonality in prices than we have seen in the last five years,” he said.

Robb noted that fed cattle will likely peak in early spring, and calf prices will be lower in the fall.

“We have to price our calves responsibly,” Robb commented. “The bottom line is, if the business plan thinks about potential downturns in advance, ranchers will come out on the other side. We have to act early and not wait.”

Feed impacts

Livestock Marketing Information Center Director Jim Robb noted that feedstuffs also play a role in the cattle markets.

“There is a relationship between corn and feeder cattle and calf prices,” he said. “In today’s market, for every change of 10 cents per bushel, we see about a drop of a dollar a hundredweight.”

For example, the four-dollar drop in corn resulted in a $40 to $50 drop in the calf market.

“Corn probably isn’t going to go higher again,” he continued. “Ethanol is no longer a driver in the U.S. corn industry.”

During drought, corn prices have compounded impacts on livestock markets because of the increased number of cattle going to feed.

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