Dog Day Markets

"Cattle markets are in the summer doldrums and are mostly marking time until fall without a lot of

"Cattle markets are in the summer doldrums and are mostly marking time until fall without a lot of trend or direction," says Derrell Peel, Oklahoma State University (OSU) Extension livestock marketing specialist. "The biggest bad news is, of course, the continued weakness in boxed-beef prices that are keeping fed-cattle prices trapped in lower the $80/cwt. range. By-product values have improved in recent weeks providing a bit of breather for packers but overall demand weakness is still the major factor holding down meat and cattle prices."

Domestically, according to the Beef Demand Index, the industry is about to where it was in 2001, just a couple of years after demand started perking up following two decades of losing 1% in demand per year.

Globally, through the first half of 2009, beef exports are down 2% in volume and 6% in value compared to the previous year, according to the U.S. Meat Export Federation (USMEF) last week.

Total beef exports to Mexico – the leading U.S. customer – are off 22% on a volume basis, valued at $498 million. Exports to Canada – the No. 2 export market for U.S. beef – are down 5% on a volume basis and 15% on a value basis through the first six months of this year.

Moreover, continuing age restrictions imposed by key beef trading partners Japan and South Korea seem likely to prevent beef exports from achieving pre-BSE levels anytime soon.

That’s the demand side. Supply fundamentals are bullish and will become more so as the nation’s cattle herd continues to dwindle.

In last week's issue of "In the Cattle Markets," John Anderson and John Michael Riley, Mississippi State University agricultural economists, wrote:

"Feeder-cattle futures prices through 2009 have been trading in a very tight window relative to previous years. In the past few weeks, the range of contract prices has tightened even more. On July 24, the range of feeder-cattle futures closing prices over the next 12 months was only 85¢. Although this date was the most dramatic, the trend has been the same all summer and continues to be that way today.

"This implies that the market has placed a premium on the November 2009 through May 2010 contracts when compared to their seasonal average price. This price range began to tighten drastically at the same time that corn prices were in a freefall and thus the likely culprit for this premium on deferred contracts.

"Furthermore, we continue to see less cattle being placed on feed which gives further incentive for higher prices in the coming months."