As the middle of the year approaches, year-to-date beef production is down 7.7% with the Choice cutout value 6.3% higher. Compared to last year, fed steer, feeder cattle, and calf prices are 5.3%, 15.8%, and 14.6% higher, respectively. Some areas have received rainfall amounts resulting in flooding and inability to harvest hay at optimum quality, but less than ten percent of the nation’s pasture and range conditions are rated as poor or very poor. Beef cow and heifer slaughter continues to be significantly lower than a year ago indicating expansion is still underway.

With July firmly in view, decisions about marketing this year’s calf crop aren’t that far away. One of the big questions that will need to be answered is whether seasonality will return this summer and fall resulting in lower prices for feeder cattle and calves. There are good reasons to believe seasonal price patterns will (or won’t) return this year. Your view on this question will help determine the right strategy for your operation in the next few months. Next month’s midyear Cattle inventory report from USDA may help fill in some of the knowledge gaps, but the final answer won’t be found in that report.

Depending on the market and weight of cattle, prices started climbing higher at the beginning of the second quarter in 2014. While prices for the first half of this year have been higher than a year ago, they haven’t exhibited the same upward momentum as three-fourths of last year did. It’s not unfair to say that most weight groups have been in a sideways price movement for most of this year which is one reason to think seasonality may result in slightly lower than current prices. Unless current price trends break their sideways trend, some weight classes may see below year ago price levels by October, and possibly earlier. This won’t be seasonality but rather the lack of additional supportive market fundamentals to push the market to new records.

One primary factor pointing toward seasonal price patterns this fall are the margins that packers and feedlots are facing. Estimated feedlot returns have been negative since December according to the Livestock Marketing Information Center. Projected feedlot breakevens are approximately $165/cwt for July and July and then climbing to $173/cwt for August and September. As packers and feedlots continue to see who will blink first in a bid to improve their margins, this could certainly result in slightly lower prices for feeder cattle and calves. However, the presence of good pasture and range conditions may leave cow/calf and stocker operators in the driving seat and limit downside price movements in the near term if they can continue to choose when to sell.

Working against the return to seasonal price patterns argument is the tight supplies of cattle. Over the past year, cattle weighing at least 800 pounds have been the only reported weight category consistently showing year-on-year increases. With lighter weight cattle apparently hard to find given current pasture conditions and at prices feedlots are willing to pay, the return of seasonal price patterns is hard to see for this year. While this year’s calf crop will likely be the second year running with year-on-year gains, it may not be enough to result in seasonal price pressures. This is partly due to the fact that recent weeks have had the lowest proportion of heifers in the Federally Inspected slaughter mix since the mid-1970s. The ability to retain heifers has likely increased since recently slaughtered heifers were placed and why the midyear inventory report will provide more information on residual feeder cattle supplies not currently in feedlots.

The above discussion does nothing to change the overall positive outlook for the industry the next couple of years as the need and incentives for expansion remain in place. It is more reflective of where the lower bound for prices this year will be set as the average annual price for 2015 is forecast to be higher than last year. Fresh in the minds of many producers is the sting of marketing cattle too early last year and leaving a significant amount of money on the table. This year does not appear to be a repeat of last year given the factors described above. A wait and see approach may work well for most as there doesn’t appear to be significant downside price risk. Being flexible and prepared for anything is appropriate as new historical norms continue.

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

                                                     1,000 head                % of Prior Year                         Avg.                       Range

Placed in May                               1,714                                   89.8                                  91.5                  86.5 – 97.0            

Marketed in May                        1,711                                   91.7                                  91.5                  90.0 – 92.5

On Feed June 1                          10,561                                 100.6                               101.0                 99.0 – 102.0

This month’s report came in line with analysts’ pre-report expectations and continues the narrative told by the past several Cattle on Feed reports. Most states except for Arizona, Colorado, and Texas had total on-feed inventories greater than last year. Placements were lower with all weight categories at least 10% lower except for the 800+ pound category which was unchanged from a year ago. There was one fewer slaughter day in May 2015 compared to a year ago.

Corn futures were mixed on the week with deferred contracts about two cents lower. Abundant rainfall continues to arrive and Tropical Storm Bill added to that. USDA will release their next acreage report at the end of the month which will provide some indication of how farmers are adapting to the rainfall received so far this growing season. Ethanol production was lower during the week even though inventories rose. Export sales and shipments continue to appear to be falling behind USDA’s forecasts for the year. The Climate Prediction Center is predicting below average temperatures much of the central U.S. combined with above average precipitation for July.

Live and feeder cattle futures were also mixed on the week with deferred contracts posting week-on-week increases. Beef demand concerns were present but the boxed beef cutout values were able to move higher on the week. Tight supplies continue to be present and providing additional market support. Feeder cattle futures continue to be at a discount to cash prices.

Light cash fed cattle trade developed Friday morning that was $3/cwt to $5/cwt lower on a live basis. Prices in Iowa, Kansas, and Nebraska at $150/cwt. Dressed prices in Iowa and Nebraska were $240/cwt, $2/cwt to $4/cwt lower than last week.

*Prices are for Medium and Large 1-2 Steers
**Mississippi prices are for midpoint of 400-500, 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*

June

 $      151.90

-0.55

 

 

 

 

July

 

 

 

 

353 1/4

 1/4

August

 $      150.68

-0.13

 $     223.43

-0.02

 

 

September

 

 

 $     221.48

-0.05

358 3/4

0   

October

 $      153.25

0.05

 $     219.48

-0.10

 

 

November

 

 

 $     217.90

0.58

 

 

December

 $      154.53

0.38

 

 

368 3/4

- 3/4

January

 

 

 $     210.60

0.67

 

 

February

 $      154.45

1.10

 

 

 

 

March

 

 

 $     207.75

0.78

379 3/4

-1 1/4

April

 $      153.43

1.18

 $     208.40

0.93

 

 

May

 

 

 $     207.30

0.30

387   

-1 1/4

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

Table 2.  State and National Market Information
Source: USDA Agricultural Marketing Service, USDA National Agricultural Statistics Service and Livestock Marketing Information Center
1 Note the placements numbers are lagged by one week prior to publishing.