Cattle Prices Gain Traction Drought will help determine ultimate price support.
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THE 2021 FALL
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Getting beyond backlogged fed cattle supplies took longer than most RELEASE: 7/8/21 thought, but heading into the fall INSERTION: 8/1/21 market, time appears to be the producer’s friend. “I think all commodities will stay expensive. Being long a commodity will probably reward you,” says Glynn Tonsor, agricultural economist at Kansas State University. “I’m optimistic prices will be higher this fall for spring-born weaned calves.” Tonsor used beefbasis.com to run numbers the second week of June. The estimated sale price of a six-weight steer at Salina, Kan. in mid-October was $174/cwt. “That would be a strong price, reflecting strong demand for beef and feedlots getting current, slowly but surely,” Tonsor says. Likewise, Derrell Peel, Extension livestock marketing specialist at Oklahoma State University says there appears to be potential for calf and feeder cattle prices to increase the longer producers wait this fall. “Be prepared to be flexible and have the ability to push marketing later,” he says. USDA’s Economic Research Service (ERS) projected the annual average feeder steer price (basis Oklahoma City) this year at $139.33/cwt. That was in the June Livestock, Dairy and Poultry Outlook (LDPO). Average prices were forecast at $139 in the second quarter, $141 in the third quarter and $143 in the fourth quarter. ERS pegged the average annual price for next year at $144.25. “Feed costs are and will be an issue, but much of that impact is already priced into the feeder cattle market, so when fed cattle prices improve, feeder cattle prices can move with them.” Peel says. Even so, Tonsor notes feed costs remain a risk. Besides weather and drought, he points out money poured into commodity markets as a hedge against inflation and supply chain bottlenecks. In the June World Agricultural Supply and Demand Estimates (WASDE), USDA lowered projected beginning corn stocks (2021-22) by 150 million bu., compared to the previous month, and ending stocks by 150 million bu. to 1.357 billion bu. Even so, the projected season-average farm price for corn was unchanged at $5.70/bu. In the June Acreage report, after
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the WASDE, USDA estimated corn planted area for all purposes this year at 92.7 million acres. That would be 1.87 million acres more (+2%) than last year, but was significantly less than the trade expected. Of course, high feed prices also present opportunity to some producers. “At the end of the day, feedlots would rather buy pounds than put them on in the feedlot with expensive corn,” Peel says. “If you’re concerned, I’d think strongly about protecting the downside,” Tonsor says. He mentions Livestock Risk Protection (LRP) insurance as one price risk management tool. Unlike hedging with a feeder cattle futures contract, Tonsor explains producers can choose any number of cattle to insure with LRP. Plus, the dollars returned for a claim, relative to the premium, are higher than they were previously. “It’s more advantageous to sellers of feeder cattle today,” Tonsor explains. “For instance, you could protect half of your herd with LRP and avoid a catastrophic outcome. Lock in singles and doubles. A lot of lenders like to hear you’re doing that, by the way.”
Fed Cattle Backlog Clearing This year is shaping up to be the tale of two halves Peel expected, but it’s taking longer to get to the other half. In this case, the point where cattle feeders are current in their marketings after being constricted by beef packing disruptions for going on two years. “With any luck, we will work through the long tail of 2020’s cattle backlog in the third quarter of 2021. As such, year-over-year cattle prices will rise in the second half of 2021 and beyond,” explained Dustin Aherin, RaboResearch animal protein analyst for Rabobank. This was during invited testimony to the U.S. Senate Agriculture Committee in late June. In the June WASDE, ERS forecast the annual average five-area direct fed steer price at $117/cwt. Average prices are projected at $120 in the second quarter, $115 in the third quarter and $120 in the fourth quarter. Next year’s forecast annual average price is $121.50. That’s with estimated total beef production this year of 27.90 billion lbs. Next year, WASDE projects beef
