Producers: Cattle Prices are Impacting Operation Decisions

October 27, 2016 10:05 AM

Cattle markets continue their turbulent prices over the past months as prices declined 12 to 13 percent for all classes of cattle. This week, however, the trend is different.

Positive movement began late last week, setting off multiple days in the green. That optimism is supported by USDA’s latest Cattle on Feed report. It found inventory numbers smaller than expected and September placements were down 2 percent from last year.

Major auction markets reported steer calves $2 to $6 per hundred higher. Heifer calves and yearlings were up $4 to $6.

“Whether this cattle market rally has legs still depends on the industry’s ability to move increasing supplies of meat through the channels,” said Greg Henderson of Drovers.

Despite the roller coaster ride, live cattle are still hovering around a dollar per hundred mark.

Cattle prices have dipped lower, roughly fifty bucks since late last year, but live cattle are hovering around the dollar mark this fall. Producers who sold before the big price drop are happy they did.

“That was luck of the draw,” said Jacob Lammert, a producer from Iowa. “It pays to be lucky every once in a while.”

Analysts believe the bottom may not be here quite yet.

“I still believe there’s $10 worth of risk in both the fats and the feeders out here,” said Mark Gold of Top Third Ag Marketing.  “We have a lot of cattle out there on the cash market.”

“If you look at the long-term cycles in cattle, generally once we complete the bottoming formation of the 10-year-cycle, which 2016 was that year when that was supposed to happen; it generally will take two to three years to work out way out of that,” said Mike North of Commodity Risk Management Group.

North believed the cattle industry will likely see stronger headwinds in Q1 and Q2 of next year, due to high kill numbers and large inventory.

“Inventory is already at record levels,” said North. “For us to continue to add to that in addition to large inventories of pork and poultry, we’ll likely see lower lows yet as we go forward.”

The volatility is draining on producers.

“You combine that with the low crop prices and with the low cattle prices and you see some guys in this area really struggle,” said Eric Hough, an Iowa producer.

Hough custom feeds in western Iowa. Despite the recent drop in prices, his lot is still full. He knows other feeders are looking for more space.

“As of today, we’re at capacity,” said Hough. “Everyone talks about the markets and how bad the market is now. That includes how much profit they’ve lost but they’re still filling them right back up.”

Other producers agree saying as soon as they are selling, they’re buying back.

Bryon Chvatal, a Nebraska producer, said some producers are keeping older cows and selling younger replacement heifers for cash flow.

“They can make more money off the younger calves, sell those and maybe hold those older cows for a few more years until the next time,” said Chvatal.

That’s including keeping cattle on the feed bill as they wait on prices to turn.

“We brought in steers and they’re 1,500 pounds plus or minus. We hauled in heifers yesterday and they were around 1,400 pounds,” says Chvatal.

Even at heavier weights, not everyone is feeding like before.

“For a while there, we were pumping out 1,500 to 1,600 pounds live. Now, we’re backing it off to 1,400 or 1,375 pound range,” says Chvatal.

It’s a time when producers are mindful of spending and hoping markets find a floor soon.

USDA’s last Cattle on Feed report may have been slightly bullish. Cold storage is negative with volumes up. 

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Spell Check

Eastern, NE
10/27/2016 04:33 PM

  Like the pure grain farmer, drink a lot of beer, put the rose colored glasses on and listen to those that say it'll be better next year! Just doesn't sell at the bank!

Scottsboro, AL
10/28/2016 02:39 PM

  Maybe you need to dumb this down for those of us in the South. Most of us always make decisions based on the price of feed, the price of feed and the selling price. I don't understand the "new" concern with price. There are at least two types of cattle producers here. The cow/calf operation and the feeder operation. The feeder operations don't have cows or replacement heifers and the cow/calf operations don't have steers weighing 1500 lbs. unless they got away when they were selling a year ago. I don't understand how you can just talk of the "producer". The two types of these producers have different selling prices and different costs and indeed they do not even have the same market as far as many of us can tell. What am I missing?


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