With the deepening drought in the Southern Plains cattle producers have continued to liquidate the herd due to the lack of feed and water, which will mean a smaller fall run. Derrell Peel, livestock marketing specialist with Oklahoma State University Extension, says, “The volume of feeder cattle through Oklahoma auctions since July 1 is up about 20% and the proportion of those over 600 pounds is way below normal.”
Cattle producers are also culling deeper into the cow herd, says market analyst Mark Schultz with Northstar Commodity. “If you go back to the first of April to current, we’re running about 9% to 9.5% cow liquidation above a year ago.”
That means less supply. However, with relatively little prospect for wheat pastures this fall, the demand for stocker cattle is also down, with the exception of heavier weight feeders, which are generally more sought after by feedlots this time of year.
“Typically, if they can feed against the April live cattle contract, it’s almost always at a premium to the June,” Peel says. “They like the bigger feeder cattle this time of the year for a few weeks. Right now, April only has about a $4 premium over June, that’s less than normal. The bottom line is there’s pretty strong demand for those big feeder cattle, and there’s not a lot of them.”
Peel says that should support cattle prices going into the fourth quarter.
“Numbers are getting tighter, we’re expecting all of these feeder supplies to really start showing some tightness. I think there’s a fair chance before the fourth quarter is over that we’ll see perhaps the highest prices of the year happen right at the end of the year.”
One of the caveats, Schultz says, is that daily cattle slaughter needs to come down from the current 126,000- to 128,000-head range.
“Maybe I’m getting a little antsy, but I was hoping we would already be in that mode of getting down to say 125,000 head of cattle on a daily basis.”
Even then, he’s not sure live cattle futures will take out the contract highs set Sept. 20.
“I just want to be a little more cautious. I’m still looking for something maybe $2 to $2.50 higher from what where are currently trading, which I think I’m going to have to look at some type of protection,” Schultz says.
Funds have liquidated some of their long positions since the contract highs were set in live cattle in September, but those chart areas were at $156.19 on the February contract, $159.65 on the April and $155.78 basis the June, so those are the areas he’s watching.
Another factor to watch is beef demand if recessionary fears continue, which could offset lower supply in the fourth quarter, Schultz adds.
