by: Wes Ishmael

If the corn crop is anywhere near expectations, though still high by historic standards, new-crop prices should finally offer cattle feeders more economic room to work with than they've had in more than a year.

Consequently, there are plenty of reasons to believe that calf and feeder prices could be fueled by a counter-seasonal price surge later this summer and into the fall.

“The second half of 2013 may look considerably different than the first half. Lower corn prices and recuperation of forage supplies will temper feed costs significantly compared to 2012,” said Derrell Peel, extension livestock marketing specialist at Oklahoma State University, in his late-June market comments.

Despite the late planting season, USDA's June Acreage report estimated 97.4 million acres was planted, slightly more than last year and the second most acres planted to corn since 1936. Ending stocks are razor thin and the ultimate number of acres harvested and the yield will ultimately determine the largesse, if any, but this far into the growing season there's plenty of reason for hope.

“Feed prospects look to be much the contrast this year as hay harvest in many areas is the best in recent memory and most of the corn crop is a thick and deep-dark green that old-timer's say makes for high yields,” said analysts with the Agricultural Marketing Service (AMS) at the end of June. “Some Midwestern farmers are now contracting a portion of their expected new crop at right around $5/bu. which is a far cry from the nearly $8/bu. that Omaha cash prices topped out at late last fall.”

“Drought conditions have improved considerably in the Midwest and eastern Great Plains, though severe conditions continue in much of western half of the country,” Peel explained.

Time for Counter-Seasonal Price Surge

Along with lower estimated cost of gain, feedlots should also receive support from cash fed cattle prices which finally perked up ahead of Memorial Day before sliding back with the seasonal price ebb.

“Fed cattle prices are currently about $120/cwt. compared to just under $117/cwt. this time last year,” Peel explained. “Fed prices peaked in early May at $129/cwt., close to year-ago levels, though the 2012 peak occurred in early March. With indications that cattle slaughter and beef production have peaked seasonally, fed cattle prices could be near the summer low but often move a bit lower in July. Relatively large levels of heavy placements recently may hold fed cattle prices under $125/cwt in the third quarter. However, fed prices are expected to move back into the upper $120s in the fourth quarter and may end the year near $130/cwt.”

Those heavier feedlot placements are at least in part the byproduct of producers holding cattle longer, waiting for prices to improve, and to some forced marketing at the beginning of summer from producers still mired in drought who simply ran out of feed.

At the same time, analysts with the Livestock Marketing Information Center (LMIC) pointed out that commercial beef production through June 20 was slightly less than a year earlier.

“Where that beef came from is important,” LMIC analysts said. “For May, USDA reported Federally Inspected beef cow slaughter was 17 percent or 44,000 head above 2012's and was the largest for the month since 2008.”

This reality lends added probability to the nation's beef cow herd starting next year with fewer head than in 2013.

“Continuing drought in most of the Western United States and declining cow-calf producer profit margins are continuing to motivate second-quarter cow slaughter that could exceed second-quarter 2012 slaughter and could result in a further January 1 cow inventory decline in 2014,” explained analysts with the USDA Economic Research Service, in the June Livestock, Dairy and Poultry Outlook. “This high cow slaughter, combined with high heifer slaughter, implies a further decline in the national aggregate cow inventory and potentially reduced supplies of beef for several years into the future.”

The pre-summer culling may also boost fed cattle prices in the latter half of this year.

“…Typically, U.S. beef production is larger in the second half of the year compared to the first six months,” LMIC analysts say. “… In the second half of 2013, LMIC is forecasting U.S. beef produced from fed cattle will be about four percent below a year ago and essentially unchanged from the first half of this year… Lower production will support both fed cattle and slaughter cow prices year-on-year. With normal weather, those trends will continue in 2014.”

All told, Peel explained, “Lower beef production and tighter feeder cattle supplies suggest that most all cattle and beef prices will move higher after summer lows that may be already in place or very near.”

Though feeder cattle prices were on the defensive through the first half of the year and are currently about five percent less than a year ago, Peel added, “With lower feed prices and tighter feeder cattle supplies, feeder prices are expected to be higher in the second half of the year compared to the first half. Feeder cattle prices may average close to year-ago levels this fall but will average lower for the year due to a weak first half of the year.”

“If national pasture and range conditions are better than during last year's drought and if Midwest crop prospects are improved, yearling and calf prices will stabilize and could increase compared to those posted recently,” LMIC analysts say. “In the fourth quarter, stronger fed cattle prices and lower cost of gain in feedlots provide a foundation for yearling prices to creep back close to a year ago levels. This fall, calf prices could exceed 2012's; of course, that will take some cooperation by Mother Nature.”

LMIC analysts believe fed cattle prices could post their annual highs in the fourth quarter of this year if the domestic economy does not falter, averaging in the high $120's to low $130's/cwt. Fed cattle prices typically slide to a seasonal low in the summer months and that's expected this year.

The June World Agriculture Supply and Demand Estimates project the average fed steer price for this year at $125-$130/cwt. ($1 lower than last month's projection on both ends). The 2014 projection remained unchanged at $128-$138.

Producers may have seen the counter-seasonal bull for calf and feeder prices begin wobbling in recent weeks.

“Feedlot replacements have increased in value right in the face of a falling fed cattle market that was $2.00 lower again this past week,” AMS analysts explained in mid-June. “Most industry members are expecting the availability of yearling feeders to be extremely tight late this summer and into the fall, but this is not the first time they've cried wolf.”

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