It’s no secret that uncertainty in the overall economy, and associated downward volatility in the stock market, has stifled beef and fed-cattle prices this year. Even as supplies have tightened, fed-cattle prices struggled to climb out of the low-$80 range through the first quarter of 2009, with the market just waiting for some positive signals on the demand side.
Purdue University Extension marketing specialist Chris Hurt notes that fed cattle averaged $81.50 per hundredweight through the first quarter of this year, $12.50 per hundredweight lower than what last summer’s futures prices suggested.
Hurt also notes that cattle prices have paralleled the U.S. stock market, with the Dow Jones Industrial Average index and finished-cattle prices nearly 90 percent correlated, using weekly data since last September. So when Wall Street started seeing a few faint signs of hope this spring, stocks stabilized and even gained a little ground. The cattle market responded, with prices inching into the upper $80s during mid-April.
As wholesale beef prices improved, the Choice/Select spread also regained some sense of normalcy. From mid-March through mid-April, there was virtually no spread, and on some days Select gained a premium over Choice. The change is due in part to more cattle grading Choice, but it also relates to depressed demand from restaurants. But by late April, Choice had returned to about a $2 per hundredweight premium — till low by historic standards but a possible sign of improving demand.
The beginning of grilling season accounts for some of that bump in demand and helps support prices. Some seasonal decline is likely through the summer months, but Hurt expresses optimism over the longer term. As noted in the Female Markets column above, next year could bring a significant market rally as an improving global economy would stimulate enough demand to strain beef supplies. Hurt points out that U.S. supplies of competitive meats also are declining. Resurgence in consumer spending, both domestic and international, realistically could pull fed-cattle prices to well over $100 per hundredweight.
April’s Cattle on Feed report indicates that fed-cattle supplies will remain tight in the coming months, with feedyard inventories on April 1 down 5 percent from one year earlier. Placements into feedyards during March ran 4 percent ahead of those during March 2008. Heavier cattle accounted for the increase, while placements in the lighter weight classes were actually lower compared to 2008, suggesting some potential increase in beef production this summer.
Feeding breakevens for placements this spring have improved somewhat after months of severe losses. Corn prices in mid-April were running about $2 per bushel lower than those of one year earlier, while calf and yearling prices averaged about $5 and $3 per hundredweight lower, respectively, compared with the same time last year. Kansas State University’s Focus on Feedlots newsletter projects cost of gain for February-placed cattle at $75 to $80 per hundredweight, which should allow some modest profits for pens closing out over the coming months.