Substantial Cattle Price Volatility

By Stephen R. Koontz

Fed cattle, feeder cattle, and calf prices have been displaying substantial volatility since April. There is simply much uncertainty about the path through the rest of the year. And it is unlikely the volatility will dissipate.

There is considerable optimism about cattle markets. Beef margins are at extraordinary levels and boxed beef product cut prices are rather high. And this is in the face of substantial production. There is some refilling of meat product pipelines, the supply chains continue to adjust to changes in product flows, and there is substantial improvement in consumer demand. All three are occurring, strengthening prices, and some portion will likely persist into the future. How will these markets react if production tightens some this fall? It appears unlikely that downstream prices and packer margins will weaken.

There are also strong exports of all red meat proteins. Pork and beef exports are not showing substantial gains but they remain strong. What is showing substantial gains are by product values – in particular beef by products – and these valuations are largely impacted by exports. This is a return market conditions not observed in some time.

And yet there remains considerable pessimism. Packers are running substantial volumes. The Saturday kill has routinely been over 60 thousand head per week. This portion of the marketing system is running at capacity. If a packer has access to an addition portion of a shift worth of cattle there is simply not an additional day of the week to run. Further, if they could run then would they be able to secure the trained labor? Add to this concern, the return of feed grain prices to strong rallies. Feed costs are returning to close to the levels set last month. Forage prices are also strengthening with the persistent hot weather and drought in the west and northern plains. And it still only June – there is July and August yet to go in the hay season. Feed prices and costs of gain are a substantial worry to cattle owners.

Through the month of May the elevated beef cow slaughter has communicated the drought impacts. There was some evidence early in the year of cows moving from the west and northern plains to the moisture laden southeast. That has likely not stopped by beef cow slaughter has increased counter-seasonally. This is of course bearish news in the short term but bullish news long-term.