HUNTIN' DAYLIGHT -- SO, THAT'S WHAT RELIEF LOOKS LIKE

by: Wes Ishmael

All together, everybody aim their lucky charms or other fate-bending apparatus toward the Corn Belt and rub hard. If market reaction to USDA's recent Planting Intentions and quarterly Grain Stocks reports are any indication, feed costs could get almost livable again.

When the reports came out mid-day on March 28, Corn futures plunged limit-down 40¢. Feeder Cattle futures, which had seemed mired in quicksand, closed limit-up $3.

That was based on corn producers intending to plant 97.3 million acres for all purposes this year. At a trend yield of 163.54 bu./acre, corn production this year could be about 14.6 billion bu., according to Todd Davis, crops economist at the American Farm Bureau Federation.

Bearishness for corn also came with corn stocks March 1 being more than the market had anticipated, though still 10 percent less than the previous year.

After news caught up with auction markets, even lightweight calves began trading higher.

Analysts with the Agricultural Marketing Service proclaimed that Friday, “March 28th is when the feeder and stocker cattle market found a bottom with a springboard to bring demand and attitudes out from under the cloud that has plagued them since right after the first of the year. Just a day earlier, it seemed there was no relief in sight from high feed costs and the late spring might cause more farmers to plant soybeans. Now, severely dwindling calf and yearling supplies are armed with the arrival of spring and its warmers days, greener pastures, and the annual lighting of the backyard grill.”

Markets were closed for Good Friday. Come Monday, Corn futures were in free-fall again. The two nearby contracts had sunk another 53¢ and 49¢, respectively (the limit was expanded to 60¢).

Over the course of two trading sessions (March 29 and April 1), Feeder Cattle futures were up an average of $5.11 across the board. They were helped by the previous week's monthly Cattle on Feed report that pegged February placements 14 percent less than the prior year.

Until then, calf and feeder markets had been mired in granny gear, grinding lower with stalled boxed beef markets and unstaunched red ink in the feedlot.

“Cattle feeders have endured negative margins since March 2011,” analysts with the USDA Economic Research Service (ERS) explained in the March Livestock, dairy and Poultry Outlook. “Even futures prices have not offered cattle feeders the possibility of positive margins, which are unlikely with cattle feeding costs in the mid-$130 range that are expected to continue at least until anticipated lower new-crop corn prices begin to mitigate feed costs.”

Even if corn bears hold sway for a spell, cattle feeder will likely face increasing supply-driven prices for replacement cattle. As ERS analysts explained, “Feeder cattle prices are expected to rise and will largely offset expected lower 2013-14 corn prices, which could lead to continued cattle feeding losses into 2014.

“Sandwiched between record and near-record fed cattle prices and record retail beef prices tempered by consumer resistance to high prices for beef cuts, meat packers have also experienced negative profit margins since summer 2012...”

Many a Slip ‘twixt the Cup and Lip

Hobbled to a different horse, while welcome, a few days reprieve can't establish a market trend.

In his market comments the Monday following the crop reports, Andrew P. Griffith, agricultural economist at the University of Tennessee explained, “Questions abound concerning why lightweight cattle prices are so weak during the ‘grass fever' time of year. Grass has started to green but little growth has occurred…There are not many stocker producers who want to purchase high risk calves then have to feed them expensive hay or grain-based feeds for two to three weeks before the grass can provide enough nutrients to meet the cattle's needs.”

“There is still a good chance that lightweight cattle prices will improve,” Griffith says. “But many stocker producers recognize the opportunity that 600-lb.calves offer relative to higher priced light-weight cattle. The market may still turn around, and if it does not then holding on to lightweight cattle might not be a bad option as heavier cattle that can go straight to the feedlot may witness strong prices in July and August…”

Griffith also notes the lack of traction for heifers, which some were betting would be a hot commodity by now. “Interest in the heifer market will start to pick up later in the year if significant moisture falls across the nation the next couple of months,” Griffith says.

That blasted weather.

“The drought is forecast to ease in the Western Corn Belt but will persist in Nebraska and Kansas, intensifying in Texas and Oklahoma,” Davis says. “However, just because the drought may be easing doesn't guarantee record crop yields in those areas...The forecast gives us an indication of what farmers intend to plant as of early March, but between now and fall harvest the influence of still-dry soils, volatile commodity prices and weather uncertainty will play out, which may change what farmers plant.”

Even with a good corn crop, there are still plenty of folks across wide swaths of cow-calf country where improving drought conditions totter between sideways or reverting back to more intense drought levels. As it is, besides the need for forage, dry ponds and tanks continue to be a problem in some areas that received recent winter moisture.

Then, there's the issue of how much consumers are willing to pay for beef.

“Beef demand is still a concern and failure of boxed beef price to push above $200/cwt. will perpetuate the current limits in fed and feeder cattle markets….” Says Derrell Peel, extension livestock marketing specialist at Oklahoma State University. “Feeder cattle markets will take their cue from fed cattle and boxed beef prices but will be influenced by several additional factors as well.

“Drought conditions will determine summer grazing demand for stocker cattle. Feedlot demand for placements will likely increase some as feedlots move past the current storm impacts and realize more additional pen space in the coming weeks. From this point on, the corn market will be anticipating corn production for the coming marketing year. If current plans for a much larger corn crop are realized, cheaper feed prices will begin to be reflected in feeder cattle prices before long. Across the board, supply fundamentals will increase price pressure on feeder and fed cattle prices and boxed beef prices. It all depends on beef demand.”







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