Econ101 said:
Well, this was my prediction. Maybe Agman can come up with something. He and SH keep telling us we have high cattle prices right now. I bet 200 to 400 per head more that Johanns et al has cheated you out of with respect to selling to Japan would come in handy right now.
Annual record high prices were recorded in all categories of cattle during 2005. If you missed that minor detail you need to get up to speed on the market.
With eight percent more cattle on feed and record front-end fed cattle supplies developing this summer there is no secret that prices will work lower. Futures are an anticipatory market. They are already discounting that supply buildup.
Beef production YTD is up 4.1%. Beef demand peaked in 2004. Carcass weights are approximately 23 pounds above year ago levels and are at record levels. Competing meat supplies are also up. Because of the lack of export sales chicken is substantially lower than last year. Some cuts are 30% lower with dark meat as much as 45% lower.
Price this quarter will average $90. When cash prices traded at $84 today they broke a three week cash support level at $86 basis the south plains. There are three years since 1990 that violated price support in current dollars at $86 during the first quarter. Those three years proceeded to trade quickly down to $82 during the first quarter. There is one week remaining to meet that objective. Thus $82 is the next price objective. Late spring/summer prices could easily trade into the $74-$76 level. A record buildup in front-end fed cattle supplies is under way that could exceed 900,000 head by July. That was measurable and predictable already two months ago. It is ironic that the domestic fed cattle supply setup this year is the polar opposite of that which existed during the summer of 2003 when record fed cattle prices developed.
There is strong historical price support in current dollars at $82 for the second quarter. If that level fails the next significant level of price support is at $77 basis historical analysis. Only one year since 1980 would have suffered that magnitude of second quarter price decline measured in current dollars.
Easter this year is the latest in 16 years and has deferred spring product purchases. The good news is that product buying for post-Easter beef features, first of May beef features and buying to cover Memorial Day product needs could begin to surface very shortly. The sharply lower beef cutout values, which preceded the decline in cash cattle prices will encourage aggressive retail beef features in the coming weeks.
Given the seasonal upturn in weekly cattle slaughter that demand improvement is necessary and welcome. February and March mark seasonal lows in fed cattle slaughter. The seasonal improvement in beef demand will be necessary to turn and reverse the current downtrend in cash and beef cutout values. March is normally the weakest demand month of the year while May is normally the best demand month of the year for beef.
Some of the worst drought conditions in the past 111 years have plagued parts of the southwest and south plains. This restricted and in many cases eliminated wheat grazing which has forced record numbers of feeders, stockers and calves into feed yards and grow yards since last fall. The recent rains will slow placements temporarily. If no additional rains develop the reprieve will likely last only 6-8 weeks. Drought conditions have forced cow slaughter above year ago levels ending the cyclical downturn in domestic cow slaughter which begin in 1997.
When the economics of high fed cattle break evens, high replacement cost break evens and fed cattle sales prices are sharply above the current cost of gain producers, as they have for decades, will feed cattle to heavier weights to lower their final breakeven. These factors have all been in place over the past year. Each additional one pound gain in carcass weights is the equivalent of increasing cattle slaughter by 1,000 head per week. As previously stated carcass weights are 23 pounds above year ago levels. Year-to-date, 75% of the increase in beef production is the direct result of record carcass weights.
On 8 weights, I slipped another nickel in the last 2 weeks (a dime slip the week before that). If I'd shipped in February with 80 - 100 lbs less animal, I would have made an additional $4000. When I asked why such a slip, I found out that Cargill has about 15,000 animals being custom fed in my area by Hutterites, and the market was adjusting to these animals being in the supply chain in another 3 months, about the same time my own 8 weights would have finished.