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Beef Demand Will Determine Supply-Side Price Strength

beef demand will determine beef supply beef prices
Supply-side fundamentals remain supportive of cattle and beef prices. It's beef demand that will determine how high prices can go.

Notwithstanding the surge in cattle markets this week, folks are still wondering how much upside exists in near-term markets.

In his early-week market comments, Derrell Peel, Oklahoma State University Extension livestock marketing specialist, pondered whether beef markets had already peaked this spring.

Peel notes fed cattle prices and boxed beef prices this year and last year broached the $200/cwt. threshold in early March before retreating. Cash fed cattle prices also peaked in early March both years before sliding backwards.

“…In contrast, feeder cattle prices have behaved very differently this year compared to 2012,” Peel says. “Most feeder prices have fallen since the beginning of the year. Last year, feeder prices rose to an all-time peak in early March.”

Peel explains feedlot placements for the last nine months are 8.6% less than the same period a year earlier. Placements during the same timeframe last year were 2.1% more than the prior year. He points out other differences this year, which include Mexican cattle imports that are a third less than last year, as well as storms that have disrupted beef production (decreased carcass weights) and marketing this winter.

“It is critical to not lose sight of the widely accepted notion that feeder cattle supplies are ‘drying up’ and how this influences placements…,” Glynn Tonsor, Kansas State University (KSU) agricultural economist, points out in this week’s In the Cattle Markets, reflecting on the 14% fewer February placements than a year earlier. 

Though cattle supplies continue to dwindle, Tonsor points out the recent paucity of placements likely has everything to do with actual net returns vs. projected returns when cattle were placed.

Tonsor and fellow KSU agricultural economist Kevin Dhuyvetter first projected returns (Kansas) for steers marketed in February back on Oct. 4. Projected returns were $22.70/head, with an estimated feeding cost of gain of $120.18/cwt. and an estimated selling price of $135.47/cwt. (breakeven fed cattle price of $133.83). Instead, estimated close-outs for those steers March 4 were estimated at minus $139.50/head return, with a feeding cost of gain of $122.84/cwt. and an average selling price of $125.47 (breakeven selling price of $135.42).


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“It is likely the worse-than-expected recent returns realized by feedyards spilled over into less aggressive interest in placing additional cattle in February,” Tonsor says. “The related question many industry analysts are asking is if these adjustments in placement interest are complete, or if similar behavior will underlie next month’s Cattle on Feed report.”

“Beef demand is still a concern and failure of boxed beef price to push above $200/cwt. will perpetuate the current limits in fed and feeder cattle markets….”  Peel says. “Feeder cattle markets will take their cue from fed cattle and boxed beef prices, but will be influenced by several additional factors as well.

Drought conditions will determine summer grazing demand for stocker cattle. Feedlot demand for placements will likely increase some as feedlots move past the current storm impacts and realize more additional pen space in the coming weeks. From this point on, the corn market will be anticipating corn production for the coming marketing year. If current plans for a much larger corn crop are realized, cheaper feed prices will begin to be reflected in feeder cattle prices before long. Across the board, supply fundamentals will increase price pressure on feeder and fed cattle prices and boxed beef prices. It all depends on beef demand,” Peel says.


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