Limit-down. Limit-up. Just another week in the global marketplace.
A week after fed-cattle prices shot to record highs, cattle feeders accepted $3-$5 less last week in the wake of Japan’s massive earthquake, tsunami and nuclear challenges. As uncertainty reigned and international investors fled speculative positions, financial, commodity and futures markets tumbled.
On March 15 – the earthquake and tsunami happened March 11 – feeder-cattle futures closed limit-down across the board; live-cattle futures were limit-down through December 2011 and then nearly limit-down across the rest of the board. Corn futures closed limit-down through September 2012. The next day wasn’t much better.
Japan is the world’s third-largest economy, after all, though it sputtered in recent years. It imports more than $30-billion worth of ag products each year, according to USDA’s Economic Research Service (ERS). About a third of those imports come from the U.S. (the largest exporter to Japan), making Japan one of the leading export markets for U.S. ag.
According to a special ERS study published last August, “Japan is the world’s second-leading beef importer by value... In 2009, Japan imported more than $470 million in U.S. beef products (down from $1.6 billion in 2003 prior to trade restrictions). Japan’s domestic production is a very important market for U.S. feedstuffs exports, with over $740 million imported to feed beef cattle in 2007 (the latest year with available data).”
According to the U.S. Meat Export Federation, Japan was the third-largest market for U.S. beef exports last year, importing 36% more beef volume than the previous year at a value of $639.5 million. The total value of U.S. beef exports last year was $4.08 billon.
By Thursday of last week, though there was growing uncertainty over Japan’s nuclear challenges, investors seemed more comfortable with the situation, at least for the day. Commodity markets, especially oil and grain, followed the financial markets higher Thursday as fund buyers stepped back into the market. Corn futures were limit-up through September 2012 on Thursday and near limit-up across the rest of the board. Feeder-cattle futures were up an average of $1.56 across the board; live-cattle futures were up an average of $1.69 across the board.
It says plenty for the fundamentals underlying the current trade that when buyers stepped back into the markets, most cattle futures contracts closed the week higher than a week earlier.
The power behind the record cattle price run – supply – has been chronicled repeatedly. But, Darrell Mark, University of Nebraska ag economist, pointed out in last week’s In the Cattle Markets (before the impact of Japan’s catastrophe were rocking the markets), “While the tight supply situation isn’t new information, the annual cattle inventory report confirmed it. Plus, part of the ‘surprise’ (if there was one) in reaching these price levels right now is the realization that the increased cattle-on-feed inventory for the past several months is the result of lighter weight calves being placed last fall that are not finished yet, and won’t be until late April at the earliest.”
According to Friday’s monthly Cattle on Feed report from USDA, cattle on feed March 1 (11.4 million head) were 5% more than a year earlier. Placements for February (1.66 million head) were 1% below the previous year; 54% placed at weights of 700 lbs. or heavier. February marketings (1.79 million head) were 4% higher than the same time a year earlier.
“So, will prices go higher yet this spring?” Mark asks. “It’s quite possible. Seasonally, the spring high isn’t usually posted in March. In only three years out of the last 19 has the fed-cattle market posted its high sometime in March. In eight of those 19 years, the high was posted in April, with the second week of April being the most common week for the high. Although the seasonal trend would point to higher prices yet this spring, the typical seasonal increase from mid-March to the second week of April averages to only about $1/cwt.
“What could help the market reach higher highs is cattle weights. Carcass weights for the past several weeks have been somewhat erratic, with some sharply lower weights being reported. Some of this was a function of winter storms that reduced weights for a week or two. Some of this was likely cattle being pulled ahead and marketed earlier than planned due to good prices. Additionally, part of the drop in cattle carcass weights is attributed to a decline in cow weights, which may signal more dairy-cow slaughter relative to beef-cow slaughter.
“Regardless, lower weights imply packers have to slaughter more cattle to generate the same amount of beef production, which helps the market stay current,” Mark says