March 29, 2024

Modest increase in cattle prices seen

Unexpected events can cause strong market reaction

DUBUQUE, Iowa — Calf, feeder and fed cattle prices are predicted to be stable to a bit higher during 2020.

“In general, we’re looking for somewhat higher prices of 2% to 4%,” said Derrell Peel, Breedlove professor of agribusiness at Oklahoma State University.

“There is a lot of volatility in these markets relative to trade, macro-economic conditions and politics,” Peel said during a presentation at the Driftless Region Beef Conference, hosted by University of Illinois Extension, Iowa State University Extension and Outreach and University of Wisconsin-Madison Division of Extension.

Markets can be impacted by “black swans” — the unexpected, unknown things that are difficult to predict.

“The coronavirus is looking like it is one of those events,” Peel said. “The markets tend to react very strongly to unknown things, and as we get more information, the markets settle back down.”

Calf prices are close to where they were one year ago.

“The second half of last year had a lot of challenges that we didn’t anticipate in the first half of the year, including feed market concerns and a packing plant fire in Kansas during August,” Peel said. “We are comparing prices to a lower base last year, so we think we’ll see modestly stronger prices particularly during that time period.”

Most of the time, Nebraska is the epicenter for feeder cattle prices, Peel said.

“Cattle prices tend to go down in all directors from Nebraska,” he said. “Iowa, Wyoming and Kansas have pretty similar levels to Nebraska, and the lowest prices are in Alabama and Georgia.”

Fed cattle prices typically peak at the beginning of the first quarter and move to a seasonal low around Labor Day, Peel said.

There were two big, pronounced spikes in boxed beef prices during 2019, he said.

“The first spike was because of the packing plant fire,” he said. “It was very brief, and prices came back down after about two weeks.”

Boxed beef prices typically increase from October into November as purchases of prime rib are made for holiday meals; however, prices were very strong last year, Peel said.

“That reflects a couple of things going on, including a lower than expected Choice grading percentage, so the Choice supply was relative tight,” he said.

“As we have grown the cowherd since 2014, we have added to the normal culling rate, so we added 1.3 million more cows to slaughter in 2019 compared to 2015.”

That 25% increase in cull slaughter, Peel said, put pressure on the market.

“I expect both seasonally and maybe because of meat markets, prices will begin to reflect that,” he said. “We normally expect cull cow markets to have a very strong season run-up from November through February and March.”

So far this year, the culling numbers have been strong.

“That’s part of what’s keeping the market under pressure and not exhibiting typical seasonal patterns, but I think they will kick in,” Peel said.

Hay stocks from 2018 to 2019 increased nationwide 6.8%, and hay production was up 4.3% in 2019 compared to the previous year.

“There’s a lot of quality issues because of the wet, cool weather during the first half of the year,” Peel said. “That really compromised the quality of the hay, so we’re encouraging producers to test their hay.”

The challenging weather in 2019 resulted in a smaller corn crop, and quality is also an issue, Peel said.

“We’re anticipating a modest increase in average corn price, but not the kind that will cause major feedlot response unless a surprise comes along,” he said.

“For the first time in three years, we have pulled ending stocks of corn below 2 billion bushels, but as long as corn ending stocks stay above 1.5 billion bushels, we won’t see a lot of market ration,” he said.

“The biggest job of the market is to make sure we don’t run out of stuff, and they way we do that is when it looks like things are getting tight, the market starts raising prices to figure out who wants it the most.”

The U.S. cowherd hit a bottom in 2014 and increased through 2019, Peel said.

“The last time we did a cyclical expansion was from 1990 to 1996,” he said. “I don’t think we’re in the economic conditions to do a sustained liquidation, so I think it is not really a peak as much as a plateau for this year.”

Steers on feed on Jan. 1 were up 1.3% in 2019 compared to 2018, Peel said.

“Then they were down every quarter through 2019 until this January when they popped back up,” he said.

“Heifers are still above year ago levels and have been since the second quarter of 2016, but I think we’re approaching a peak,” he said. “Feedlot inventory right now is at record level back to 1995, and we’re about at the peak so we’ll start pulling that down.”

Cattle slaughter was up 1.7% in 2019, and that will probably decrease this year, Peel said.

“Carcass weights all of last year were below year earlier levels until the end of the year when they got well above year earlier levels,” he said. “Beef production will probably go up a little bit even though cattle slaughter will be slightly lower because carcass weights will push the total production a little higher.”