A Few Thoughts: A Look Ahead at the Cattle Market
June 10, 2015
As mid-year approaches, there is still plenty of uncertainty surrounding the market, but cattle numbers remain relatively tight, particularly as producers build herds and retain heifers for replacements. Heifer slaughter through the end of May was down 8 percent from a year earlier. This sharp drop is further highlighted when judged against a similar sharp drop during the same period in 2014. So, while last year's calf crop is up 1 percent according to USDA's cattle inventory, feeder cattle supplies remain relatively tight as heifers are held as replacements. Prices for feeder steers during the first five months of the year were up 22 percent from a year earlier while cull cow prices were up 17 percent during the same period. Beef cow slaughter through the end of May was down 16 percent from a year earlier when it was down 12 percent. From the standpoint of cow-calf production costs, prices for diesel fuel are down an average of 22 percent during the first five months of this year compared to a year ago and with exception of California, the forage outlook is very favorable following May rains.
So, what does all of the above mean to you? Prices for feeder cattle and calves will remain strong and above a year earlier through July when last year's prices jumped sharply. I expect the same pattern for cull cow prices. Yearling steer (775#) prices will range mostly $210 – $220 during the second half of the year while 485# steer calves will be mostly $275 – $300 during the same time. Cull cows will be $110 – $120 during the second half. Consequently, profitability to cow-calf operations this year may surpass last year's record by perhaps as much $100 per head depending upon individual circumstances. My guiding principal in that matter is that when it comes to analyzing ranch economics, there is no "one size fits all," but there are reasonable sideboards to provide guidance.
Contrary to last year, feedlot margins will remain under water all year. Feeder cattle prices during Aug-Dec 2014 drove breakeven prices to the low-to-mid $170s during first-half 2015 when those cattle were marketed and led to sharp losses compared to a year earlier. While breakeven prices have come down for cattle placed during the first five months of 2015, they are still likely well above expected Choice steer prices. The only remedy to that situation is increased feeder cattle supply relative to demand and lower prices. That's the 2016 outlook.
While I remain optimistic for the balance of 2015, demand is still the key and I wouldn't "throw caution to the wind."