Cattle market strength surprises industry
Fed and feeder cattle cash prices have been strong this fall, much to the surprise of many in the industry. At the same time, live and feeder cattle futures also pushed into new contract highs to start November, with prices in the deferred contracts looking very positive into 2018.
Some analysts have attributed the strength to the extremely long position held by the hedge and index funds, while others are pointing to the rally in the stock market. However, according to industry participants there are many other factors.
The good news is after a tough couple of years, the strong calf prices are leaving many cattle producers optimistic about the future. In fact, many say prices for calves are substantially higher than last fall.
Curt Meidinger, a cattle producer from Zeeland, N.D., was very pleased with the prices he received when he recently sold his calves at Herreid Livestock Auction.
"You have calf prices now that are probably $20 to $40, even $50 a hundredweight higher than last year in some of them light cattle, so it's a significant jump," he says.
Myron Williams, a Wall, S.D., cattle producer had the same experience.
"Surprising these calves are bringing $200 to $300 more a head this year than they did last year," he says. Williams says this is especially positive for producers who sold calves early due to drought in the state.
In addition, there have been some good profits for the feedlots the first part of 2017 after a considerable amount of red ink in parts of 2015 and 2016.
Cody Vollmer, who owns Presho Livestock Auction in Presho, S.D., says some of the margins are the best he has seen in his lifetime.
"There were some instances of $500 to $600 head profits and some of your strict hedgers were maybe down in that $200 to $250," he says.
Those strong feedlot closeouts are driving the demand for calves this fall, as well as low corn prices.
"The only way to really try to get $3, $3.25 or a half for this corn is going to feed it, and that in turn has created quite a bit of demand for these calves, especially the heavy ones," says Steve Hellwig, co-owner of Hub City Livestock Auction in Aberdeen, S.D.
Strong packer margins have also been driving the strong demand for calves and yearlings.
"Packers are making about $175 to $185 a head, and that's sure a plus and as long as they're making some money," says Joe Vetter, with Herreid Livestock Auction in Herreid, S.D. "I think we can see pretty good support in the feeder end of it."
The surprise has been the strength of the cattle market in the face of increasing herd numbers. Keith Eichler, an Aberdeen cattle producers, says feedlots have been moving cattle at lower weights rather than hold onto them, which is helping.
"Placements have been a lot higher, and I understand that, but if you look at numbers for numbers, the marketings have been very close and that's very encouraging," he says.
The other big factor is the strong consumer demand. Mike Maher is a cow-calf producer from Isabel, S.D., and is on South Dakota Stock Growers Association board.
"Our numbers, according to the reports, are higher than they were a year ago, and tonnage is up, but the demand they seem to be able to sell the product," he says.
Meidinger agrees that domestic and international demand has played a large role.
"I think demand has held up, our export market has definitely helped us a lot," he says.
Vetter says the retail beef prices have also remained steady, which has stimulated consumer buying interest in beef.
"You see the prices in the store hanging in there, and they're moving it real good," he says.
All of these factors leave many in the industry optimistic about the cattle market ahead.
"I think we're probably going to be looking at a pretty steady market on these feeders, fat cattle down the road. I think are going to get somewhat stronger," says Vetter.
Hellwig is also upbeat about the outlook for the cattle market. "Hopefully things stay the course. ... I'm very optimistic that the end of 2017 moving into '18 could be pretty profitable here," he says.
As a cattle producer, Maher is hopeful for steady prices so everyone in the business can stay profitable:
"We had a high in '14, and that was maybe unrealistic, but we've seen the low last year. Maybe it will bounce back somewhere in between where everyone can make a few dollars."