US Feeder and Live Cattle Market Analysis – March 18, 2024.

Demand & Supply:

Domestic beef demand remains steady, but inflation might cause consumers to tighten their belts, potentially putting downward pressure on live cattle prices. However, US cattle herd management throws another wrinkle into the mix.

Drought’s Impact:

Persistent drought, particularly in the Southwest, forces ranchers to cull herds earlier, potentially increasing the immediate supply of feeder cattle. This could drive feeder cattle prices up in the short term. Based on today’s data (March 18, 2024), feeder cattle futures contracts with nearby expiry dates show higher asking prices than contracts further out. For example, many contracts expiring in April currently have an asking price of around $205 per hundredweight (cwt), while July expirations are priced around $131 per cwt. This price difference reflects the anticipation of a temporary increase in feeder cattle supply due to drought-related culling.

Feeder Cattle Market:

• Short-Term Supply Boost: Drought-induced culling is expected to increase feeder cattle supply shortly, potentially putting upward pressure on feeder cattle prices, as seen in April expiry contracts.
• Long-Term Outlook Uncertain: The long-term impact of drought on feeder cattle prices remains uncertain. While the initial surge in supply might drive prices down, a potential reduction in overall US cattle herd size due to drought could tighten feeder cattle supplies later, pushing prices higher. Monitoring how the drought situation evolves will be crucial for understanding the long-term direction of feeder cattle prices.

Live Cattle Market:

• Mixed Signals: Recent cash sales suggest some support for live cattle futures, with prices ranging from $185 to $190 per cwt. However, live cattle futures contracts are currently volatile. Nearby contracts (April expiry) show some buying interest, with asking prices reaching $190 per cwt, while contracts further out show selling pressure, with prices dipping to $182 per cwt. This hesitancy likely reflects the counteracting forces of increased feeder cattle supply and the possibility of tighter live cattle supplies in the future.

Uncertainties Ahead:

• Drought Severity: Continued drought would significantly impact feed costs and potentially lead to a larger-than-expected reduction in US cattle herds. This situation could increase feeder and live cattle prices in the long run.
• Consumer Response to Inflation: If inflation significantly impacts consumer spending on beef, it could weaken demand and dampen live cattle prices.

Summary:

Herd management is of utmost importance to the cattle feeder. There is a fear that the recent jump in five-area cattle weights could back up a few animals; however, the Packer does have an appetite to pay for market-ready supplies as Texas cattle fetched a record-high cash price. The Packers have done a fantastic job managing their harvest levels over the four to six weeks– expanding beef margins during the period. The futures market price remains uncommitted.