Cattle producers have seen price rallies in the last month after a two-year downward trend where values fell more than 40%. But the rally may not remain much longer.
Last month feeder steers weighing 750-800 lb. sold at Oklahoma City averaged $125.19/cwt. Prices climbed to $134.38/cwt last week, but the cattle markets probably won’t stay on a rally, says CattleFax CEO Randy Blach.
“I wish I could say what we've seen the last several weeks was going to continue for a while, but I’m not sure it will with the market situations,” Blach says.
He outlined what producers can expect heading into 2017 and what has been the cause of the downturn at the Kansas Livestock Association Convention in Wichita.
During the past few months economists have been questioned on how their projections could miss the severe drop in markets.
“This has not been about cattle, it has been part of global slowdown,” Blach says.
The bull market for commodities started in 2009 during the end of the global financial crisis.
Record highs for grain prices ensued, signaling farmers across the world to grow more wheat, corn and soybeans. Production has been up for all three major grains. The livestock industry followed that pattern after down production years caused by drought and disease outbreaks in the U.S.
All commodity prices have dropped in the past few years after reaching record high levels, ringing in current bear market trends. From August 2012-2016 corn markets dropped 60% and soybeans saw a drop of 47% from August 2012 to February 2016. Fed cattle prices followed those trends dropping 43% since November 2014.
Cattle producers dealt with huge prices swings from their peaks in 2014 to lows of 2016. Steer calves weighing 550 lb. averaged $911 in losses from the cycle high, with 750 lb. feeder steers falling $941.
“Commodity cycles are a good reminder of how quickly things can change,” Blach says.
The cattle markets were some of the last commodities to top the market and have been the last to spiral downward. Unfortunately, Blach believes the declining market trends could continue heading into 2017 and 2018.
“I do not think that this volatility and craziness is done,” Blach adds.
CattleFax analysts have projected the following price averages for 2017 commodities:
- Fed cattle $110/cwt
- 750 lb. feeder steer $130/cwt
- 550 lb. steer calf $150/cwt
- Beef cutout $185/cwt
- Bred cows $1,300/head
- Corn $3.45/bushel
- Crude oil $48/barrel
- Retail gasoline $2.49/gallon
- Retail diesel $2.60/gallon
Oil prices are something cattle producers should keep in mind for the future. Organization of the Petroleum Exporting Countries (OPEC) recently announced plans to reduce oil production, which could drive up oil prices. CattleFax’s energy outlooks do not account for these developments from OPEC. A rise in oil prices may cause cost of production to increase for agriculture producers.