Conventional wisdom would tell us that weekly packer/feeder negotiations and subsequent regional market dynamics would be influenced by Cargill’s decision to close its Plainview, TX, processing facility in January. It’s still too early to sort out the long-term effect of that closure, especially given all of the other factors at work from a week-to-week basis. However, an overview of regional price differences reflects some important developments even prior to the Plainview announcement.
The accompanying graph depicts regional deviations (basis Nebraska) over time. Historically, the positive deviation in the Southern region occurred during the early part of the year and subsequently diminished as the market transitions into spring. That reliable seasonal pattern primarily resulted because of seasonal discrepancy between supply (show lists) and demand (capacity) across the regions. The Southern premium became larger in the winter with waning fed cattle supply; excess packing capacity in the south drove the market higher in order to pull cattle into the region. The difference proportionally declined as supply increased into late spring and early summer.
However, that long-run pattern unexpectedly shifted in 2011: the southern premium has essentially disappeared with the northern market largely outperforming the southern market ever since. Clearly, the 13-week moving averages reflect some different regional price dynamics at work in the market that were in play long before the Plainview decision.
The shift may be explained by any number of factors including increased prevalence of beta-agonists (which have subsequently influenced weekly negotiations), greater presence of Mexican cattle in the southern region, an amplified Choice-Select spread, and some commitment of southern packing capacity (Plainview) to cull cows. Whatever the cause(s), the outcome has some important implications.
What do you see as the driving force behind this overall shift? What effect might it have on the feeding sector over time? Where do you see all of this headed in the future?
Leave your thoughts below.
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