Calf and feeder prices set
to move cyclically higher.
by Wes Ishmael
I
f the value of a commercial breeding bull is an extension of the
price commercial producers receive for their calves, then bulls
should be worth more to those producers for the next few years.
At least that’s what market fundamentals suggest, with fewer cattle
numbers over time, coupled with domestic beef demand strength
and growing international demand. What follows is just that, a
fundamental summary and outlook, which cannot account for
drought, packing plant fires, the potential impact of novel coronavirus,
or other unpredictable events.
First, some price perspective
At this year’s Industry Outlook, during February’s annual Cattle
Industry Convention in San Antonio, CattleFax forecast steer calf
prices (550 lbs.) this year $6 higher than last year at an average of
$170/cwt., across a range of $155-$180.
CattleFax also projected feeder steer prices (750 lbs.) to increase an
average of $6 year over year to an average of $150/cwt., across a range
of $140-$160.
By way of comparison, USDA’s Economic Research Service (ERS)
forecasts feeder steers prices (basis Oklahoma City) at $145 in the
first and second quarters, at $148 in the third quarter and at $146
in the fourth quarter. That’s from the February Livestock, Dairy and
Poultry Outlook.
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Further, CattleFax pegged fed steer prices at $120/cwt., which
would be $3 more than last year. Analysts noted downside risk at
$108 and resistance at $130.
That’s more bullish than ERS, in the February USDA World
Agricultural Supply and Demand Estimates (WASDE), which forecast
the annual fed steer price at $117, ranging from $112-$123.
Moreover, CattleFax projected utility cow prices this year to average
$65/cwt., ranging from the low $70s to a fall low near $55.
The increased supply of utility cows spawned by several years of
aggressive herd expansion will likely challenge the cull cow market,
But Kevin Good, CattleFax Vice President of Industry Relations and
Analysis noted, “Increased demand for lean trim and a decline in
the availability of imported grass-fed trim from Australia and New
Zealand will be supportive of cow prices.”
Broadly speaking, drought-forced herd liquidation in Australia and
increased exports to China, in the wake of African Swine Fever, is
boosting the value of domestic lean trim.
On the input side of the equation, Mike Murphy, CattleFax Vice
President of Research and Risk Management Services, estimated acres
planted to corn to be 4 million acres more this year at 94 million acres.
He pegged spot corn prices at $3.50-$4.00/bu., which would be 15¢ to
20¢/bu. less than last year, notwithstanding significant weather pressure.
Murphy’s corn acreage forecast mirrors the one USDA shared at
February’s Agricultural Outlook Forum.
“The U.S. corn outlook for 2020-21 is for record production and
domestic use, increased exports, and higher ending stocks,” according
to USDA’s Grains and Oilseeds Outlook. “The corn crop is projected
at 15.5 billion bu., 13% above a year ago with an increase in area from
last year’s weather-reduced plantings and a return to trend yields. The
yield projection of 178.5 bu./acre is based on a weather-adjusted
trend assuming normal planting progress and summer growing season
weather. Despite beginning stocks forecast down from a year ago,
total corn supplies at 17.4 billion bu. are forecast to be record high.”
A record corn crop could add lift to calf prices this fall.
“Feed prices during 2020 are likely to be slightly lower than 2019,”
says Shayle Shagam, livestock analyst with the World Agricultural
Outlook Board, in the Outlook for Livestock and Poultry in 2020.
“Corn prices in the first part of 2020 are expected to be above a
year ago, reflecting a forecast 2019-20 crop year average of $3.85/
bu. However, prices later in the year are expected be below 2019,
reflecting a decline in the season average price to $3.60/bu.”
• APRIL 2020