Regardless of which market we might discuss, “uncertainty” is an accurate descriptive term. U.S. equities are unsettled with interest rate hikes currently delayed but promised in March, according to the Federal Reserve.
This background has done little to settle the equity markets, and this spills over to cattle and beef. A couple of strong days headlined cattle futures this week, following up a very choppy futures trade a week ago.
Cash cattle trade this Feb. 1 found feedyards fairly bullish and packers equally responsive in the range of $140 per hundredweight (cwt). Trade was regional at this price, but the $3 per cwt increase over the Jan. 25 average found feedyards willing to sell their better cattle.
A broader view of fed cattle prices for January reveals a sideways price trend, with very little tie from boxed beef values to fed cattle prices.
Packer efficiency improved last week, with an incremental uptick in the slaughter pace to 643,000 head, a 1.1 percent increase over the prior week. As reiterated many times before, larger slaughter rates are key to the success of every supply chain sector. There is no downside to larger head counts at this time.
The historical bias for beef demand for the month of February is lower. As a matter of fact, February tends to be the low-demand month of the year. This can practically be thrown aside in 2022 because of the smaller harvest pace.
Beef inflation is a two-pronged anomaly today. Of course, the broader economy is reflecting the inflationary conditions across all consumer goods. Yet, retail beef prices continue to bear the added burden of the imbalance in supply and demand.
Boxed beef values last week were mixed, with the Certified Angus Beef (CAB) cutout reported slightly lower but Choice and Select values a bit firmer. Early the week of Jan. 30, the daily pricing shows a softer pricing trend across the board.
Two primary factors are continued concerns of COVID-19 and the fact current retail beef price levels are record high for this time of the year, 20 percent higher than the same period last year. Regarding COVID-19 concerns, end users are likely debating the normal Valentine’s Day beef demand will be lessened.
The U.S. Department of Agriculture’s (USDA) Jan. 1 cow herd inventory, published this Jan. 30, confirmed a two percent decline in the beef cow herd, along with a one percent decline in feeder cattle supplies. This is relatively in line with earlier estimates, although some had projected the beef cow decline fractionally smaller than the USDA number.
Implications moving forward for cattle markets remain unchanged due to this report, as these facts were already priced in to the market. Good news for cattlemen from a price perspective, as the outlook is quite bullish with smaller supplies expected to heat competition for feeder cattle. As we’ve noted, feeder and fed cattle futures contracts in the deferred months have priced this in for some time now.
In the near term, placements of feeder cattle have been robust in the fourth quarter and January is likely to show another strong month of placements. For the 2022 marketing year, this has front-loaded the calendar year with cattle directed more heavily toward feedlots. Fewer are going out to graze on small grain pastures due to dry conditions.
The second half of the year has risk toward fewer fed cattle supplies in terms of the typical seasonal balance. Of course, this has opposing implications for buyers and sellers of fed cattle during this period.
Paul Dykstra is the assistant director of supply management and analysis at CAB. He can be reached at email@example.com.