Thursday, February 14, 2008
Feeder Cattle Prices Whip-Lashed By Corn Prices
We often comment on how corn prices are whip lashing feeder cattle prices. The chart below shows the whip lash for 2007.
CME Feeder Cattle Price Index
The CME Feeder Cattle Futures Settlement Prices are based on the CME Feeder Cattle Index. This index, in turn, is calculated on the 7-day moving average of cash salebarn sales in cattle country.
The dramatic down turn in the Feeder Cattle Index started in October 2007 and continued through Mid-January 2008. Preliminary analysis suggests that the feeder cattle price index has turned upward again in late January 2008.
I am expecting this index to peak in 2008 near grass time at $8-$10 under the 2007 peak but near the grass time level of 2007. What happens after that, depends of the weather scares in corn country.
Wednesday, February 13, 2008
Canadian Cattle Imports
This chart is Canadian live cattle imports -- both feeder cattle and slaughter cattle. Under utilized U.S. feedlots are very willing to feed Canadian cattle. It helps keep the feedlots fuller. Note the increase of Canadian cattle imported from May07 through Nov07. While not shown on this chart. Imports have remained very high into Feb08 and I see no reason for them to decrease any time soon.
As you think about Canadian imports, keep these import numbers in perspective. We produce around 27,000,000 feeder cattle in the U.S. So… 180,000 imports is really not that significant.
U.S. National Beef Cow Inventory
Back to the basics. This chart shows that the cattle cycle has been broken. All indications are that the U.S. cow herd is not going to grow for the rest of this decade. In fact, the nations cow herd could continue to slowly decrease through 2010.
The implications here is that we are projected to have a smaller calf crop for the rest of this decade. This implies that feedlots will not be able to find feeder calves to keep all lots full. Well financed feedlot will bid aggressively for feeder cattle. The benefactors of this aggressive bidding will be ranchers.
Kansas Slaughter Cattle Basis (Cash minus Futures)
Some of my IRM Cooperators are involved in finishing cattle so this should be of interest to those producers. This is the basis calculation (cash minus futures) prepared by Kansas State University for Kansas. This data is the average of the last 3 years. The basis for where you sell your cattle may vary a little from these but should follow this pattern. (I am working on getting some Eastern Wyoming/Western Nebraska basis data summarized.)
We know that there is generally a shortage of finished cattle around April -- some times also in March. We are out of old crop (2006) finished cattle and most new crop (2007) calves are not yet ready for the market.
This year I expect to see slaughter numbers really increase in June and July as more 2007 calves skipped winter wheat grazing went straight to the feedlot at weaning. I am not sure the market is really reflecting this yet.
Market prices tend to peak for the year in April when very few ranchers have finished cattle to market. The two groups of ranchers that can have finished cattle to market in April are (1) those that early weaned their 2007 calves and (2) those that calve Jan/Feb and wean in September.
For example, a producer selling his calf-feds in April 2008, should expect to sell his cattle $3 over the April futures prices. The projected basis range is from a +$2 to a +$4.75. Given the 12 Feb 08 Closing Apr08 contract of $94.77, this suggests a Kansas April 2008 slaughter cattle price of $97.77 -- not bad -- provided your breakeven price is lower; however, My PPP-MIS model for a "Winter Calving Cow Herd" has Jan/Feb born calves finishing in mid-Apr with a breakeven of $104/cwt.
Note the basis price goes negative around 1 July and stays negative for the rest of the year. When do you think most 2007 calves will be harvested? It is June, July, and August.
The ranchers that retains his calves, is rewarded if he is part of a production system that harvests his calves in April of each year.
Predicted Corn Carryover
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I advise ranchers that the best way to observe (and even predict) corn prices is to watch the Carryover projections. The lower the carryover, the higher the annual corn price. Ending stocks as a % of Total Usage is that carryover. Most analysts will use carryover as their predictor of annual corn prices. Researchers have even developed a statisitical historical relationship between carryover and corn prices.
Note that 2007/08 projected carry over is even lower than the 2006/07 carryover. Also note how low the 1995 carryover was when we had the last run-up in corn prices. This all suggests, at least to me, that corn prices are going to some higher in 2008. This all is even before we take the growing season weather into account.
I am suggesting corn prices will be in the high $4.00s range for 2008 -- up another dollar over 2007s.
March 2008 Feeder Cattle Futures Prices
The above chart is the daily March Feeder Cattle Prices from early September Through 12 Feb 2008. This chart shows the downward trend from Early Oct through Mid to late January. It also shows an upward trend since the low around 20th January. All indications are that prices may well trend upward into early summer. The desire for grass cattle may well be driving up these prices.
Tuesday, February 12, 2008
Long-Run Planning Prices for Emerging Biofuel Era
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All indications are that the Cattle Cycle has been broken by the emerging biofuel era. USDA has published a new set of long-run planning prices that pertains to the biofuel era. I am now using these planning prices with ranchers around the country as we build their 2008 to 2010 business plans.
If you are needing or wanting help to build your 2008-2010 ranch business plans, please contact me at firstname.lastname@example.org or 701-238-9607.
Beef Cow Profits
Double click on the small image to see the chart of Beef Cow Profits over the last several years with a projection for 2008. Indeed, we have had several years of very good profits per cow. The emerging biofuel era, however, is changing this.
My projections is realatively steady beef cow profits for the rest of this decade. Now is the time for ranchers to focus on redcuing their costs of producing a hundredweith of calf (UCOP).
If interested, contact Harlan Hughes (email@example.com) or 701-238-9607 and I have a new IRMez Cost & Return System designed to help ranchers lower production costs during this emerging biofuel era.