Cattle producers have enjoyed a strong market this spring thanks to tight supplies of market-ready cattle and good demand from American buyers.
Rising feed prices cutting into profitability have been a concern, but the reason behind the price rise, ethanol demand, might also provide a solution: distillers grain.
Beef prices in the United States last week hit 31/2 year highs. Low feedlot placements in the fall and winter led to tight market-ready supplies just as the spring surge in beef demand for barbecues developed. Also carcass weights were down because a series of winter storms had hurt U.S. feedlot performance.
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But there was a question late in the week whether the seasonal price peak had been set.
“There was some thought (in the commodity markets) that boxed beef may have priced itself out the market, but despite a rapid selloff after (April 12’s) high, prices are still strong enough for feedlots to keep buying,” said Darrell Mark of the University of Nebraska.
He said the strength of the cattle market was a surprise, given the high cost of feeding.
But feedlots appear to be making good use of low cost distillers grain.
“It can be hard to wrap your head around how the (cattle) feeders in this region can keep paying these prices for feeders until you factor in the 30 or 40 percent (wet) distillers grain into their rations.”
This reorientation of feed costs that is seeing higher grain prices but large supplies of distillers grain could change where cattle are fed, Mark said.
“I think we’re seeing a move to cattle feeding moving closer and closer to supplies of wet distillers grains. Feeders are showing strong responses to properly handled rations and I think this is going to create added profitability for the sector that will translate into continued imports of Canadian feeder cattle at strong prices into the future.”
Mark said the U.S. demand for Canadian cattle might create tough competition for feeder cattle in the western Canadian market, where neither corn nor the wet distillers grain are abundant.
Meanwhile, the American cattle herd seems stalled in the rebuilding phase of its cycle.
After seven years of solid profits, American cow-calf producers were expected to begin herd expansion in earnest this spring.
Five to seven years of drought that stretched north from Texas almost to the Canadian border had kept herd numbers under wraps, but rain last fall and heavy winter snow were expected to spur heifer buying and cow retention.
Instead, the first quarter of 2007 saw a 17 percent increase in beef cow slaughter, said Kansas State University economist James Mintert.
Could this spell a further reduction in the U.S. herd?
In the newsletter In the Cattle Markets, Mintert wrote that a good way to gauge whether producers are reducing the size of the U.S. herd is the ratio of cow and heifer slaughter to steer slaughter. When female slaughter exceeds steer slaughter, it indicates herd liquidation is underway. When female slaughter falls far below steer slaughter, herd rebuilding is indicated.
“So far this year female slaughter has averaged about 97 percent of steer slaughter. The implication is that U.S. producers are still holding the nation’s cow herd steady,” he wrote.
If forage production prospects this summer improve substantially compared to last year, some producers might think about herd expansion, he said.
Mark had similar thoughts.
“The market may be signaling them to get back in and start retaining cows, but psychologically they aren’t ready yet,” he said, noting the recent troubles with the weather are fresh in producers’ minds.
“They want to see where corn acres are really going and get some indication of what feed prices will be like in the fall and winter,” he said.
