This year’s cattle market has certainly been one of shock and awe: awe-inspiring that prices could rise this high, this fast and shock from the fact that new records keep being set. Excitement about the prices is mixed with nervousness about the duration of the current price levels as decisions about expansion prospects. Herd expansion is a multi-year process of which the U.S. cattle industry is just beginning. There is still room for prices to move higher over the next couple of years, but that depends on supply and demand fundamentals which will be revealed in the coming weeks, months, and years.

For producers that are on the fence about expanding their herds, increasing calving and weaning percentages can have the same impact as adding additional females without an additional monetary investment. Additional management and time are needed to increase the number of marketable calves with little additional effort (and cost) relative to the return. Part of the management efforts needed to increase calving and weaning percentage go back to good recordkeeping which can often be an afterthought to other routine tasks such as pasture management and general farm repair and maintenance.

Given the surge in cattle prices seen over the past year, the following discussion may not have occurred had prices seen a slower rate of growth as in some previous cattle cycles. As the end of the year approaches, it’s certainly not too early to start thinking about how to manage this year’s tax liabilities given how strong returns have been. In fact, now may be an “ideal time” as there is time to make plans and execute them before the end of the year. With some of the tough years that cattlemen have faced in the past decade, maybe rebuilding lost equity is the most pressing need for the operation. Upgrading equipment and general farm improvements that were postponed may now be within reach.

Plans that are developed between now and the end of the year should be multi-year in nature. The current strength in cattle prices will likely continue another 2-3 years before expansion starts to result in lower prices. If investments in the farm, machinery, or additional cattle are made that require a loan, then consideration about how large of a down payment on the loan needs to occur. While most lending institutions will require a certain percentage, larger down payments can result in lower borrowing costs over the length of the loan. More importantly, it also makes repaying the loan much easier in future years should the cattle market experience unforeseen market pressures that are not currently anticipated.

In recent years, a lot of attention has been paid to the average age of farmers. Given that, for some producers, maybe consideration of putting the money in a retirement account is worthwhile. For many, the farm is the retirement plan, but the current price levels provide the opportunity to think about alternative investment opportunities that may not hurt the overall value of the farm.

It’s unlikely that the top in this cattle cycle has been reached and time will tell how much additional upside there is in the market. Farm financial management and planning may get more attention in market downturns, but it’s no less important in the good times. Discussions with all who have a stake in the farm business now can ease the potential headaches down the road.

September USDA NASS Cattle on Feed Report summary:                               Pre-Report Estimates

                                                     1,000 head                % of Prior Year                         Avg.                       Range

Placed in August                          1,720                                   97.1                                  96.0                 92.5 – 100.0           

Marketed in August                   1,692                                   90.4                                  90.5                  89.5 – 94.5

On Feed September 1               9,799                                   99.2                                  99.0                 97.0 – 100.0

This month’s USDA NASS Cattle on Feed report included the smallest level of marketings and placements for the month of August. There was one less slaughter day in August 2014 compared to a year ago and accounting for that fact leaves marketings over 5% lower than a year ago. Placements were lower in Iowa, Nebraska, and Texas. Feeder cattle placements in Texas were 7% lower from a year ago, but this number may have been smaller had Mexican feeder cattle imports not been 30% greater than August 2013. Placement of cattle weighing less than 600 pounds and greater than 800 pounds were up by 1% and 3%, respectively, which pulled up the average estimated weight from last month and slightly from last year. However, the 600-699 and 700-799 pound categories were 14% and 7% lower, respectively.

Corn futures moved lower on the week as the weather outlook continues to be favorable through the end of September. Export inspections are slightly below what is needed to keep pace with USDA’s forecast for the marketing year with slightly higher ethanol production and stocks contributing to price pressure. Crop condition ratings for maturity and harvest are below the five year averages, but the market doesn’t seem to be overly concerned at this point.

Live cattle futures were mixed on the week with nearby months lower and deferred months higher. Lower boxed beef prices put pressure on futures as concerns about the strength of domestic demand aren’t going away. Feeder cattle futures were higher on the week even though they followed live cattle futures at time during the week. Lower corn futures were able to provide support for feeder cattle futures that wasn’t necessarily there from the live cattle pit.

Cash fed cattle sales were light to moderate on similar demand as of this writing.  Live sales were $159/cwt in Kansas and dressed sales in Nebraska at $244-$245/cwt. These prices are $2-$3/cwt lower on a live basis and $3-$5/cwt lower on a dressed basis from last week.

*Prices are for Medium and Large 1-2 Steers
**Mississippi prices are for midpoint of 500-600 and 700-800 steers
Note zero values in table represent no reported sales for that weight group.
Source: USDA AMS

Source: USDA AMS

Table 1.  Futures Prices

 

Live

 

Feeder

 

 

 

Month

Cattle

Change*

Cattle

Change*

Corn

Change*

September

 

 

 $     230.60

1.13

 

 

October

 $      155.63

-0.65

 $     228.73

2.80

 

 

November

 

 

 $     226.33

2.40

 

 

December

 $      158.70

-0.55

 

 

331 1/2

-7   

January

 

 

 $     220.68

2.90

 

 

February

 $      160.25

0.68

 

 

 

 

March

 

 

 $     219.08

1.80

344 1/4

-6 3/4

April

 $      159.20

1.65

 $     219.00

2.20

 

 

May

 

 

 $     218.65

1.53

353   

-6 1/2

June

 $      151.05

1.50

 

 

 

 

July

 

 

 

 

360   

-6 3/4

August

 $      149.00

1.20

 $     218.50

0.80

 

 

Source: DTN
* Change is from the previous Friday’s close