A Crystal Ball

     As the evenings are getting shorter, we tend to get into a planning mode for the spring, summer and fall. Maybe we even start thinking too hard in trying to guess what livestock prices will be and when to sell or contract lambs, calves or yearlings.

At this moment, some are nervous. The price of calves has dropped, and no one can really say why, except it was time for a correction. Calves at certain weights have dropped more than others. Some classes of cattle dropped five dollars one day then came back five dollars the next. It almost parallels the price movement of oil – up one day, down the next two.

I don’t think many in the cattle business really know how 2015 will turn out. Everyone threw out their crystal balls this past year as the planets lined up and prices just kept getting better until December.  But we do know some facts, such as number of cattle out in the hills and in the feedlots, the number of head slaughtered and whether we are slaughtering steers or heifers.  These all add up, and so do the pounds of chicken and pork out there.

We know that cattle numbers are rising. There was one percent more calves in 2014 than in 2013. Calf numbers were one percent higher in 2014 than in 2013, so even with the high prices, producers were holding back heifers.  We also know that consumers, despite record high beef prices at the meat counter, continued to buy beef, and that’s good.  

These numbers tell us something. As someone said, “The cattle inventory increase is a good reminder that record high prices and high profits are the market incentives to increase production, and that market works.”

Pork and poultry production in 2015 are expected to be four to six percent higher than last year, and beef supplies are estimated to be smaller, around one percent.  Now remember the pork and poultry numbers and bring in the price of oil.  

As oil goes down, the strength of the dollar goes up, our beef, lamb, pork and poultry costs more for other countries. That leaves more of those products to compete against each other in the U.S. for America’s consumers.  The strength of the dollar can really hurt us.

So we get back to the crystal balls. John Harrington wrote in a column “The Progressive Farmer” some very interesting thoughts about the latest rise and fall of beef prices.

“Psychology is one of those terms we throw around all the time without ever bothering to define what it means.  Nevertheless, I think it’s an incredibly strong force that can make all the price difference, both positively and negatively, in the world,” he said.  

He goes on to say, “I’m certainly not suggesting that last year’s bullishness should not have happened, just that it may not have attainted warp-speed without a certain level of market psychology.  And the significant shift in prices we are now seeing may say less about changing fundamentals per se than a cooling of psychology that simply got away overheated.”

These are just the thoughts of one bunkhouse economist, but even with the correction, prices are still good for selling calves.