12 April 2010

3 minute read

North America

Great Expectations Realized

Two years ago I wrote an article entitled Great Expectations about the cattle market. Similarly to the classic novel by written by Dickens with that title, those expectations were not realised. I wrote of cowboys expecting higher prices, the futures market promising those higher prices, “experts” almost guaranteeing those higher prices, and yet lower prices occurring at sale time. Is this the year those great expectations will be realised? I must admit that I was skeptical at the start of the year when I saw April Live Cattle futures priced over $90. I believe in more than one meeting, I said that in spite of a tight cattle supply situation, I would be surprised to see many cattle sell for over $90 unless demand also improved. The last seven weeks, the 5-market live fed cattle price as average over $90 per cwt. Some loads of cattle have sold for over $96 per cwt. during this time frame. Those are the highest fed cattle prices since September 2008.

In 2008 and in 2009, the APR LC contract declined about $10 per cwt. from expectations in November of the prior year until the following April; hence, great expectations unrealized. However, this year the APR LC contract has gained $10 from November until now; great expectations surpassed. Instead of losing $50-100 per head on cattle sold, as has been the case for most of 2008-09, feedlots are seeing a $50-100 pre head positive return on cattle currently being sold.

About a month ago, an In the Cattle Market newsletter focused on the strengthening box beef market. The thought was that demand may have improved a little, but that supply was driving the market higher. Since then, box beef prices have continued to strengthen. Last week was the highest Choice price since July of 2008. While supply of cattle and beef remain relatively tight and this is the main force behind higher prices, I also believe that demand must have strengthened for these higher prices to have been realised.

The Markets

The fed cattle market was higher this past week. Most trade took place on Thursday this week on decent volume. Prices were mostly $96 on a live weight basis and were $156 on a dressed basis. Choice boxed beef prices were $1.50 higher this week. The Choice-Select spread increased but remains narrower then the typical level. Feeder cattle prices were generally higher this past week compared to last week’s prices. Montana prices were $3-5 higher depending upon the weight of feeder cattle. Nebraska prices were $1-3 higher for 550 and 750 pound steers. Oklahoma prices were $2-4.50 higher for 750 and 550 pound steers compared to last week. Corn prices were a dime lower per bushel than last week. Dried Distillers Grain prices were $0.40 per ton lower and wet distillers grains were priced a little higher in Nebraska for the week.