Feeder and fed cattle prices are currently at roughly the same levels as in late 2013. In the intervening 26 or so months, cattle markets have been on a rollercoaster that took cattle prices higher, faster than ever imagined, followed by a sharp correction in late 2015 that was more abrupt and severe than anyone could anticipate. This has left cattle producers cautious and somewhat hesitant about what to expect going forward. One of the challenges through this period has been the fact that many of the cattle and meat market indicators, patterns and relationships have behaved very unusually leaving producers and analysts at a loss to understand and anticipate market movements.
Recently, however, there are number of indications cattle markets may be returning to somewhat more typical behavior. After the worst year ever in 2015, feedlot margins are moving back to levels will lead to positive returns for feedlots. This process is not complete and will likely continue through the next few months. Within feeder cattle markets, the margins or value of gain across weights just recently has adjusted to reflect feedlot cost of gain. The value of gain calculates to the $0.70 - $0.80/pound range in the past couple of weeks. This suggests that feedlots are pricing feeder cattle in a manner that reflects equilibrium across weights. This is the first time in many months that the value of gain in feeder prices is consistent with broader cattle market conditions.
On a very different note, wholesale beef markets appear to returning to patterns not seen for many months. So far in 2016, middle meats are advancing or holding value relative to weaker end meats. This long term tendency for middle meats to be the strongest part of carcass value has been reversed much of the time in recent years, going all the way back to the recession in 2009. Retail beef prices peaked in mid-2015 and are working lower as beef production begins to grow. Similarly, the ratio of retail beef prices to pork and poultry prices pushed to unprecedented levels over the past two years and has now peaked an begins adjusting back to more typical levels. The retail meat price ratios have been an impressive indication of strong beef demand but the fact that the retail price ratios are returning to more typical levels is an indication of more relative stability in meat markets.
Finally, perhaps the most obvious sign of relative stability is the fact that feeder and fed cattle and beef markets are exhibiting mostly seasonal behavior so far in 2016. Dramatic price trends, both up and down over the past couple years have overshadowed seasonal market tendencies. Though cattle and beef prices are expected to trend lower over the coming months, that trend will not be pronounced and markets are expected to behave much more seasonally.
While cattle and beef markets will no doubt continue to experience volatility, especially related to external macroeconomic and global uncertainty, it is encouraging that many of the internal market indicators are swinging back to more typical levels. This indicates a degree of relative stability in cattle and beef markets that has not been there in recent months.