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January cattle report: New year shows no slowdown

Corbitt Wall Published on 26 January 2011

0211pc_marketreport_1Feeder cattle demand, trading activity, and price levels for the opening month of 2011 were all unprecedented with feeder cattle over 600 pounds trading $7 to $15 higher and calves under 600 pounds selling $13.00 to $18 higher than 2010’s closing markets. Market watchers basically ran out of superlatives to use in trying to describe January’s feeder markets; most are down to just saying that they never saw anything like it, but the reality is – no one has ever saw anything like it before.

All classes of calves and yearlings set new all-time record high prices in the face of heavy early-year receipts. Buyers aggressively bid on lightweight cattle as if temperatures were warming up and green grass was sprouting.  Quite the contrary, as a huge mid-January widespread winter storm literally covered the United S5ates as Florida was the only state not reporting measurable snowfall.

Chicago Mercantile Exchange out-front contracts for live cattle are currently trading from $110.00 to $115 per hundredweight and near the all-time record high cash fed cattle price levels posted in 2003, while the bulk of direct sales started out 2011 from $105 to $108 per cwt. Despite high feed costs ($6.25 to $6.50 per bu cash corn) and high feeder cattle (CME Feeder Cattle Index above $127 based on a 750-pound steer) cattle feeders found hedging opportunities as investment funds continue to prop-up agricultural commodities with confidence in sound fundamental data. U.S. cattle inventories are the smallest since 1958 with a beef cow slaughter in 2010 that was 8.8 percent larger than 2009 and the largest herd selloff since 1996. Plus, Midwestern cattle producers are finding that last winter’s harsh conditions were even harder on their cows than they thought, as many cow/calf outfits are reporting over 30 percent open females with heat and humidity also playing a part at conception time.

Like feeder cattle, many agricultural commodities are at or near record highs, especially for this time of year. The USDA recently adjusted last year’s corn crop down to just 152.8 bu/acre which is 10 bu/acre lower than early fall forecasts when harvest was getting underway and this lowers 2010 corn production to 645 million bushels, 5 percent lower than 2009. The increased global demand for corn and the rise in domestic corn-based ethanol production has lowered the availability of our favorite grain for feed usage to its lowest level since 1995. Ten years ago, more than half of the U.S. corn supply went to livestock feed; today that number is down to 37 percent.  Calf buyers are hoping to take full advantage of relatively cheap gains on summer grass, but extremely tight expected supplies of available stockers this spring has spurred demand for lightweights earlier this year. For the week ending Jan. 21, 500- to 600-pound steer calves sold in South Central auctions averaged $139.51 compared to 106.50 the same week in 2010.

How far will these record feeder prices go and how long will they last?  Calves will eventually have to get high enough that cow/calf production can financially compete for acres with row crop farming, recreational hunting or conservation. In many parts of the U.S., even current cattle prices are not enough to keep landlords from kicking cows off their pastures. Rock solid fundamentals promise a bright outlook for any young cattleman to invest in a future of raising beef. Unfortunately, many cattle people are seeing this recent surge in prices (at every level of production) as an opportunity for dispersal, rather than expansion.end_mark

Corbitt Wall is officer-in-charge and the Missouri federal-state supervisor at the USDA-Missouri Livestock and Grain Market News Service.