Cattle markets are approaching the tip of the primary quarter of 2023 on a really sturdy observe. Animal costs throughout the board have been very sturdy. Fed cattle have traded above $165, 7-8 cwt feeder cattle have traded above $190, and 5-6 cwt calves have traded simply wanting $235/cwt. Stay cattle futures approached inside $11/cwt of all-time excessive costs established in November 2014. Nevertheless, feeder cattle are effectively beneath their information because of the energy within the forage and feedgrain markets. Cow-quality hay is routinely above $200/Ton and corn has solely lately proven sufficient weak spot to press beneath $6/Bu on the board. Money foundation within the southern plains continues to carry at $1 over.
It’s moderately attainable that this energy is the same old spring seasonal rally come early. There could also be extra up strikes for the second quarter however that may seemingly require adjustments within the fundamentals not see now. Current beef export information has been disappointing whereas pork and hen exports have been sturdy. The relative protein costs do a lot to elucidate this end result. Whereas retail margins have remained extensive, in distinction, packer margins narrowed significantly by the fourth quarter of 2022. These margins are massive in comparison with what is usually noticed within the first quarter of the yr. However defining what’s typical, or what’s the new norm, is tough given the occasions of the previous 5 years.
What’s inarguable is the energy of home demand. Customers have been keen to pay very excessive retail costs for big choices of beef portions. It appears unlikely that this may stick with the slowing financial system and the central financial institution’s aggressive strikes to regulate inflation. The variety of components within the for-and-against checklist concerning optimism in cattle costs has extra on the towards facet.
The one large change attainable within the for-category is the return to extra regular forage and feedgrain costs. If that’s the case, then feeder cattle and calves are moderately under-valued. However that may take a retreat from prices of acquire which might be between $1.30 and $1.50 per pound. That is the main change and present fundamentals that may lead to additional energy within the calf market.
All in all, the primary quarter of 2023 seems to be to be extra of a return to market circumstances noticed previous to 2016-17. Tighter provides and thinner margins. Which will probably be made extra pronounced by any herd rebuilding. However there seems to be little of this in 2023 as beef cow liquidation continues at a robust tempo. Once more, there may be an increasing number of proof of regular operations by the availability chain. Particularly, the amount of Saturday fed cattle slaughter is off significantly in comparison with final yr whereas the Monday to Friday slaughter has elevated.
