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Year ends with higher price push on fed cattle

Corbitt Wall Published on 21 December 2010

0211pc_marketreport_1Holiday interruptions did not stunt the demand for beef cattle, with all classes continuing to gain ground. Year-end market activities tend to scare beef producers as fears of Christmas 2003 (BSE outbreak) are rekindled and folks remember just how vulnerable prices are to the public’s perception of our product.  However, massive herd reduction has put a bullishness to the supply-side which is far outweighed by demand as exports continue to inch closer to regaining what was lost seven years ago. Unforeseen factors seem to be the only ones to threaten these inflated markets, since fundamentals appear almost invincible. Many industry members expect extremely tight supplies to culminate in 2011, which could result in all-time record high prices at every level of production.

The largest price advances in 2010’s fourth quarter was for lightweight calves under 500 pounds, which gained 10.00 to 15.00 during the month of December and set new record-highs in many major marketing areas of the United States. Before last month, $2 per pound of beef was a price tag reserved for processed and wrapped product at the butcher’s meat counter. But, mid-December saw several live calf markets reach $200/cwt on individual pee-wee steers or bulls weighing under 300 pounds. More impressively, a ring-full of reputation ranch steers weighing 340 pounds reached that magic level in southwest Kansas. Calf buyers collectively think that stocker calves will be even harder to buy as we approach spring, so they are willing to take a tender $700 investment into the brunt of winter with little available forage. Southern Plains dryland winter-wheat pastures are nearly barren from the lack of moisture and grazing of any kind is hard to find, even in the Southeast where early cold snaps have been more brittle than normal.

Heavier calves (over 500 pounds) and yearlings also sold higher during the last month of 2010, although not nearly as sharply as the lighter-weights. Feedlot and pre-condition lot replacements traded $3 to $5 per cwt higher through December, despite stubbornly high grain and feed prices that refuse to weaken with cash corn now $5.50 $6.00 per pushel in the central portions of the country. The majority of cattle feeders are now fully dependent on some type of by-product feed source as cost-of-gains are increasingly computed from distiller’s feeds rather than a high concentration of whole grains. Most cattle feeders are no longer so hesitant in using substitute protein sources, even late in their feeding program.  Nutritionists have found recipes for supplements that can be added with little or no loss of performance.  Ethanol plant residues have also seen sharp price increases (some wet products have doubled in price in recent months) but rations with a high percentage of by-products are still much cheaper than the traditional corn diet.

Fed cattle sales improved to as much as $104 live-basis in the weeks leading up to 2011, but boxed beef values struggled in the weeks leading up to Christmas which pressured fat cattle late in the month.  Beef wholesalers have trouble maintaining movement when choice boxes move past $160. Perhaps this is the level at which steakhouse menus have to be reprinted and beef can no longer keep its market share. The beef industry does not want its products to get so expensive that consumers change their eating habits as economies are still struggling. But, tight inventories of cattle are passing along unseen price levels and until the lines of production start to get backed-up at some point, cattle and beef will remain in a sellers’ market. end_mark

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

 

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