Feeder and fed cattle markets returning to ‘normal’

Friday, March 4, 2016

Producers can be forgiven if they seem to be experiencing a case of déjà vu, as feeder and fed cattle prices are currently at about the same levels as in late 2013 after a 26-month rollercoaster ride in the markets.

“Cattle prices went higher, faster than anyone projected, followed by a sharp correction in late 2015 that was more abrupt and severe than anyone anticipated,” said Derrell Peel, Oklahoma State University Cooperative Extension livestock marketing specialist. “This has left many cattle producers cautious and somewhat hesitant about what to expect going forward.”

A particular challenge through this period has been that many of the cattle and meat market indicators, patterns and relationships have behaved contrary to what one would typically expect, leaving producers and analysts at a loss to understand and anticipate market movements.

Recently, however, there are number of indications cattle markets may be returning to “normal.” After the worst year ever in 2015, feedlot margins are moving back to levels will lead to positive returns for feedlots.

“This process is not complete and will likely continue through the next few months,” Peel said. “Within feeder cattle markets, the margins or value of gain across weights recently adjusted to reflect feedlot cost of gain.”

The value of gain calculates to the 70 cent to 80 cent per pound range in the past couple of weeks, suggesting that feedlots are pricing feeder cattle in a manner that reflects equilibrium across weights.

“This is the first time in many months that the value of gain in feeder prices is consistent with broader cattle market conditions,” Peel said. “On a very different note, wholesale beef markets appear to be returning to patterns not seen for many months.”

Thus far in 2016, middle meats are advancing or holding value relative to weaker-end meats.

“This long-term tendency for middle meats to be the strongest part of carcass value has been reversed much of the time in recent years, going all the way back to the recession in 2009,” Peel said.

Retail beef prices peaked in mid-2015 and are working lower as beef production begins to grow. Similarly, the ratio of retail beef prices to pork and poultry prices pushed to unprecedented levels during the past two years and has now peaked. Prices seem to be adjusting back to more typical levels.

“The retail meat price ratios have been an impressive indication of strong beef demand,” Peel said. “However, the fact retail price ratios are returning to more typical levels is an indication of more relative stability in meat markets.”

Finally, perhaps the most obvious sign of relative stability is the fact that feeder and fed cattle and beef markets are exhibiting mostly seasonal behavior to date through 2016. Dramatic price trends, both up and down over the past couple years, have overshadowed seasonal market tendencies.

“While cattle and beef markets will no doubt continue to experience volatility, especially related to external macroeconomic and global uncertainty, it is encouraging that many of the internal market indicators are swinging back to more typical levels,” Peel said. “Cattle and beef prices are expected to trend lower over the coming months.”