Cattle prices could remain range-bound
Dan Grant interviews Jeff Beasley, Illinois Beef Association president, at the opening session of the IBA summer conference in East Peoria
Published: Jun 22, 2012
Risk management could be as important as ever for cattle producers this summer.
Cattle prices are expected to remain bound within a range of $114 and $122 per hundredweight. Meanwhile, crop and feed prices could be all over the board depending on whether drought conditions ease or intensify, according to Chip Nellinger and Adam Dryer, risk management consultants.
Nellinger and Dryer of Blue Reef Agri-Marketing in Morton last week discussed the situation with cattle producers at the Illinois Beef Association’s summer conference in East Peoria.
“We want to sell at the high, but it’s more about protecting the risk,” Nellinger said.
He believes the cattle market put in its seasonal high ($130-plus per hundredweight the third week of February) and low ($114 the last week of May) about two weeks early this year.
If that is the case, the risk management consultant believes cattle prices likely will be bound this summer in a trading range between $114 and $122.
“We saw the big peak early in the year (followed by a large price drop in May),” Nellinger said. “Now we’re kind of in no man’s land going forward.”
USDA in its monthly cattle on feed report Friday estimated cattle and calves on feed as of June 1 totaled 11.08 million head, up 2 percent from the previous year.
Placements in feedlots totaled 2.09 million head, up 15 percent, while marketings in May were 2.02 million, up 1 percent.
Cattle producers this summer could struggle to grow their herds, according to Jeff Beasley, a cattle producer from Creal Springs and president of the Illinois Beef Association.
Dry conditions have burned up pastures, reduced hay production, and could reduce corn yields and subsequently drive up crop/feed prices.
“A couple months ago (when USDA forecast record corn production) cattle feeders and cow-calf producers were optimistic we’d see lower grain and feed prices,” Beasley said. “Now, it may be trending the other way.”
The IBA president said he already has seen a 60-cent per-bushel increase in corn he purchased for feed.
“If we don’t produce a good crop this fall, there will be a lot of risk out there,” he said.
Beef cow slaughter so far this year is down 9 percent compared to last year. But the smaller beef slaughter numbers have been offset somewhat by a 2.5 percent increase in dairy cow slaughter, which has been driven by high milk production and lower milk prices.
The situation could get more complicated for cattle producers if the drought cuts yields and drives up crop prices.
“A record yield of 166 bushels per acre (predicted last month by USDA) is not in the cards,” Dryer said. “The question is, when will USDA tell us? If the weather stays dry, it probably will push corn prices higher (and yield potential lower).”
Nellinger believes a variation in corn yields, from 150 to 160 bushels per acre nationwide depending on the weather during pollination, could be the difference between $6 and $7.50 corn.
Likewise, he said if the drought persists through the summer and limits soybean yields, $15 beans are not out of the question.
“With so much volatility, it’s really important to get more education about the (marketing) tools out there” such as packer contracts, futures, and options, Nellinger told cattle producers. “A lot of times you can use tools like that to limit risk and still have some upside.”
Permalink: Click here