The Perfect Storm:
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Students of history will recall that during the early 1930's, the famine in the Ukraine region of the U.S.S.R. was intensified and prolonged by peasant farmers consuming a portion of their seed grain during the winter in order to avoid starvation. This ensured lower production the next crop year because fewer acres could be planted.
Unlike the Russian peasants, cattlemen are not facing starvation but the industry could experience lower production caused by a "Perfect Storm." The possibility of a "Perfect Storm" for the U.S. Beef Industry exists. Cattle numbers are lower today than they have been for decades. This is primarily due to 2 factors:
High feed costs, the result of competition for corn from the Federally subsidized ethanol industry, have caused many producers to liquidate or downsize their herds.
Domestic and foreign demand for U.S. beef is surprisingly strong. The result is that large numbers of productive heifers and cows have gone, and continue to go, to slaughter instead of staying in the country and increasing the size of the breeding herd.
Other potential factors, should they converge with those outlined above, would likely cause a "Perfect Storm." Study the Drought Monitor map shown further down in this Market Summary. If the drought continues, large numbers of cows and heifers will have to come to town and many will be sold for slaughter, further diminishing the cow herd. Should the drought expand and cause even minor damage to the corn crop, no one knows how high feed prices will go, in light of the fact that higher oil prices caused by continued upheaval in the Middle East, will allow the ethanol industry to become even more aggressive in the corn market.
Even though this scenario would likely result in higher cattle prices, it will also result in an even smaller cow herd. And higher cattle prices won't necessarily mean higher profits for all cattle operations. Higher feed, fuel, & fertilizer costs could offset or exceed the increased income, leaving only producers with low-input operations realizing higher profits.
Ironically, during a period of historically high cattle prices, the U.S. herd could continue to decline, incentivizing other nations to increase their production, and the U.S. losing both competitiveness and market share.
St. Joseph, MO
Bred Cows: Medium and Large 1 3 yrs to short solid mouth 970-1435 lbs 3rd stage 1300.00-1375.00. Medium and Large 1-2 3 yrs to short solid mouth 1050-1490 lbs 2nd stage 800.00-1110.00.
Pairs: Medium and Large 1 short solid mouth 1350-1400 lbs w/150-200 lb calves 1450.00-1600.00, few aged 1350 lbs w/150 lb calves 1250.00.
Joplin, MO
Bred Cows: Medium and Large 1-2 2 yrs to short solid mouth 2nd-3rd stage 1000-1350 lbs 1175.00-1335.00, singles and small lots 900.00-1125.00, 1st stage 1075-1250 lbs 1160.00-1250.00, balance 900.00-1125.00; short solid mouth to aged 2nd-3rd stage 1150-1325 lbs 750.00-885.00. Large 1-2 4 yrs to short solid mouth 2nd-3rd stage 1400-1550 lbs 975.00-1250.00. Medium and Large 2 2 yrs to short solid mouth 2nd-3rd stage 945-1150 lbs 785.00—825.00. Medium 1-2 3-6 yrs 1st-2nd stage 900-1000 lbs 700.00-825.00.
Pairs: Medium and Large 1-2 2 yrs to short solid mouth 1000-1300 lbs w/baby to 395 lb calves 1125.00-1350.00, few w/250-385 lb calves rebred 1375.00-1450.00; short solid mouth to aged 1125-1300 lbs w/baby to 300 lb calves 1085.00-1275.00. Large 1-2 5-7 yrs 1385-1425 lbs w/300-425 lb calves rebred 1610.00-1735.00. Medium and Large 2 7 yrs to short solid mouth 1075-1150 lbs w/baby to 250 lb calves 900.00-1175.00. Medium 1-2 2-6 yrs 875-1000 lbs w/baby to 225 lb calves 1075.00-1335.00; short solid mouth to aged 1000-1020 lbs w/baby calves 775.00-975.00.
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Beef Prices Highest Since 2003:
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The ongoing rise in beef prices has surprised analysts and economists, who say better-than-expected exports to such places as South Korea and Mexico are driving the increases. Choice-grade beef, the grade preferred by restaurants, cookout enthusiasts, and importers, averaged $189.87 per cwt. in wholesale markets Tuesday morning. That is up 1.8 percent from a week ago and the highest since October2003. "Clearly, beef packers have been able to push prices higher largely because of export demand," said Jim Robb, economist atthe Livestock Marketing Information Center.
Beef exports this year have exceeded expectations and prompted the U.S. Agriculture Department earlier this month to raise its 2011 export estimate by 3.5 percent to nearly 2.43 billion lbs. The 2.43 billion lbs is up 5.5 percent from 2010's exports. Sales to South Korea have been particularly strong as that country needs meat to replace lost production there as it battles foot and mouth disease in its cattle and hogs. "Our weekly beef sales to South Korea have been the largest since before 2003," said Robb. Japan was the second largest buyer of U.S. beef last week and U.S. livestock traders predict it will be a leading buyer going forward as it will need to replace food spoiled or damaged in the aftermath of the earthquake.
BEEF COMPANIES BENEFIT
The higher prices have helped beef companies like Cargill Inc, Tyson Foods, and JBS USA, who are operating in the black despite paying record high prices for cattle. On Tuesday, the livestock advisory firm HedgersEdge.com estimated beef companies, on average, earned $55.55 on every head of cattle processed into beef. That is up from $11.20 a week earlier. At a time when demand for beef is strong, supplies are expected to decline.
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Genuine Lack of Aussie Cattle Curb Beef Trade:
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The "genuine shortage" of Australian cattle for sale, which has driven prices near to a record high, looks set to last for the rest of the year, depressing beef shipments from the world's second largest exporter to an eight-year low. Supplies of cattle for sale have fallen "considerably" in Australia thanks to improved conditions for rearing animals brought by rains which, in some parts, have proven the strongest in 123 years. Besides watering pasture land, the rainfall downgraded large quantities of Australia's grain crop from food quality, meaning ample quantities of fodder and producers have begun to withhold cattle suitable for breeding purposes. This had led to a "genuine shortage of cattle for slaughter, causing some processing plants to wind back slaughter to match lower cattle supplies".
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Feedyard Closeouts: Profit/(Loss)
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Blue Line-- Typical closeout for un-hedged steers sold this week: $65.01
Projected closeout based on the futures when Placed on Feed: ($12.63)
Red Line -- Based on the futures, projected closeout for placements this week: ($24.13)
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Slaughter Cattle:
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Friday trading in the Texas Panhandle and Colorado was at a standstill. In Kansas, Nebraska and Iowa/Minnesota trading has been mostly inactive on very light demand. Not enough sales for an adequate market trend in these feeding regions. Wednesday was the last reported markets in the Southern Plains and Colorado. In the Texas Panhandle live sales sold at 113.00 with a few at 114.00. In Kansas live sales sold at 114.00 and dressed sales at 181.00. In Colorado live sales sold at 115.00 with a few up to 116.00 and a few dressed sales sold at 186.00. Thursday was the last reported markets in Nebraska and Iowa/Minnesota. In Nebraska, on Thursday, dressed sales sold at 190.00. Live sales, on Wednesday, sold at 115.00 with a few up to 116.00. In Iowa/Minnesota, on Thursday, dressed sales sold at 190.00. Live sales, on Wednesday, sold from 115.00-116.00.
The average live weight of cattle slaughtered in the Texas Panhandle for the week ending 03-19-2011 was 1240 lbs with 36 percent heifers compared to 1226 lbs and 43 percent heifers the previous week and 1225 lbs and 38 percent heifers the same year ago.
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Market Overview:
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Packers purchased cattle from $113-115 with the lower prices in the southern plains and the higher prices in the northern plains. The need to add more inventory at steady prices is failing and packers raised bids in the north to $190 in the beef or $5 higher than last week. Packers can't decide whether to ramp up the slaughter with high margins which will use more inventory or pare back the slaughter to hold up box prices. Increased slaughter numbers will require more inventory and feedlots currently remain very current and want sharply higher prices. Volumes were only moderate.
Packers enjoyed the best margins of the year and interest in beef was good to start the week. Mid week buying interest slowed and box prices weakened. The choice cuts were quoted $1 lower at $187 with select higher at $186. The choice select spread is widening seasonally.
The feeder market jumped higher in early week trading. Most auctions report strong demand for all classes of cattle. Dry weather in the southern plains is still plaguing the area but short supplies of calves is keeping prices high. Movement of feeder cattle off wheat fields is concluding and few will remain for graze out. Current prices for 750 lb. steers on the southern plains are $132.
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Although the information contained in this Market Summary is from sources believed to be accurate and timely, THE CATTLE RANGE EXPRESSLY DISCLAIMS ALL WARRANTIES, EXPRESSED OR IMPLIED, AS TO THE ACCURACY OF ANY OF THE CONTENT PROVIDED, OR AS TO THE FITNESS OF THE INFORMATION FOR ANY PURPOSE.
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