You are here: Home Columns Spotlight on Economics Spotlight on Economics: Cattle Price Volatility Continues
 
Document Actions

Spotlight on Economics: Cattle Price Volatility Continues

Images
Tim Petry, Extension livestock economist, NDSU Agribusiness and Applied Economics Department (NDSU photo) Tim Petry, Extension livestock economist, NDSU Agribusiness and Applied Economics Department (NDSU photo)
Expect cattle and other livestock price volatility to continue until trade disputes are resolved.

Tim Petry, Extension Livestock Economist

NDSU Agribusiness and Applied Economics Department

Several producers recently expressed their frustration with the volatility in cattle prices.

Price movements of several dollars can occur from one day to the next, and cash and futures market prices even seem to move in opposite directions at times. Of course, uncertainty causes market volatility, and a number of supply and demand challenges are adding to market uncertainty.

Weather issues always impact the market. By the end of June, expanding drought conditions caused about 26 percent of the U.S. beef cow herd to be in an area experiencing drought. Last year, only 6 percent of the beef herd was in drought, with the far northern Plains the hardest hit.

The worst conditions are in the southwestern U.S., starting in northern Texas, western Oklahoma and Kansas and moving through states to the west. The U.S. Drought Monitor shows D4 (exceptional drought, which is the worst drought category) in several of those states. Moderate drought also is occurring in the far northern Plains, but conditions have improved greatly during the last year.

Drought conditions pose the threat of forced beef cow herd liquidation and early movement of calves to market. Beef cow slaughter was up more than 12 percent from last year during the first six months of 2018.

Drought in the winter wheat grazing area of the southern Plains caused early movement of calves from wheat pasture into feedlots. On March 1, almost 9 percent more cattle were on feed than were on feed at that time last year.

That led to a 9 percent surge in cattle slaughter in May and June averaging 650,000 head per week. Weekly slaughter levels were the highest since 2013. Fed-heifer slaughter was up about 16 percent, indicating a slowdown in beef herd expansion.

On the other side of the weather picture, the U.S. corn crop at the end of June was off to the best start in many years. The U.S. Department of Agriculture’s weekly crop report rated 77 percent of the crop in good or excellent condition, with near ideal weather conditions. That, along with large corn carryover stocks and escalating trade issues with China and North American Free Trade Agreement countries, resulted in December corn futures prices declining about 60 cents per bushel.

Declining corn prices are supportive to feeder cattle prices. Other factors being the same, a 10 cent per bushel change in corn prices usually causes about a $1 change in fall calf prices in the opposite direction.

Record highs also create market uncertainty. U.S. pork, broiler (chicken) and total meat production were all record high in 2017. Those three categories are projected to be record high again in 2018.

U.S. beef production likely will follow suit in 2018 with record high production, so record amounts of meat will be available to consume domestically or in the export market. The previous record high beef production occurred in 2002. Increasing supplies of meat usually result in lower livestock prices unless demand increases.

On the domestic demand side, a strengthening U.S. economy has bolstered consumer incomes and reduced unemployment levels. The recently enacted tax cut that put more money in consumers’ pockets was expected to be supportive to meat demand. However, the increase in gasoline prices largely has offset that.

Continuing with the “record high” theme, U.S. beef exports were record high in 2017 and very supportive to cattle prices. 2017 cattle prices averaged higher than they were in 2016, even with higher cattle numbers and increased meat production. Beef exports are projected to be record high again in 2018.

A major reason for increased market volatility in the livestock and grain markets in the last few months revolves around seemingly ever-changing trade negotiations with several important trade countries. Positive outcomes with trade agreements are important to the U.S. beef industry so record beef exports, along with robust exports of competing meats, can continue.

Until the trade disputes are resolved, expect cattle and other livestock price volatility to continue.


NDSU Agriculture Communication - July 11, 2018

Source:Tim Petry, 701-231-7469, tim.petry@ndsu.edu
Editor:Ellen Crawford, 701-231-5391, ellen.crawford@ndsu.edu
Columns
Spotlight on Economics: Spotlight on Economics: Big Data, Analytics and Corn Have Much in Common  (2018-10-17)  Big data is helpful if it's convert into something useful: information and actionable insights.  FULL STORY
BeefTalk: BeefTalk: The Next Chapter: Some Happy, Some Sad  (2018-11-01)  Ringwall is becoming director of the University of Saskatchewan’s Livestock and Forage Centre of Excellence.  FULL STORY
Prairie Fare: Prairie Fare: Be a Superhero by Trimming Food Waste  (2018-11-08)  Most of us can take steps to reduce food waste at home.   FULL STORY
 
Use of Releases
The news media and others may use these news releases in their entirety. If the articles are edited, the sources and NDSU must be given credit.
 

Powered by Plone, the Open Source Content Management System