March 8, 2010

American producers delay feeder cattle marketing slightly

Cattle producers in the Plains this year appear to be holding young cattle on wheat pasture a little longer than usual, resulting in firmer-than-usual prices.

The late sales to feedlots were blamed on this winter's harsh temperatures and snow. Analysts and brokers said wheat is breaking out of its dormant cycle a bit later, allowing producers to keep cattle on the pasture for some added weight gains.

Cattle markets see an influx of feeder cattle at this time of year as producers take them off winter wheat where they have grazed all winter. They usually begin to swell livestock auctions and pressure prices beginning in mid-February and ending in mid-March.

Extended grazing at this time of year will damage the wheat and prevent a harvest. If the field is not likely to produce much of a wheat crop, however, the cattle may be left to "graze out" the wheat until it dies off about May. The field could then be planted to soy.

Besides breaking out of dormancy a little later than last year, pasture conditions are better than a year ago with more moisture, said cattle market analyst, Elaine Johnson. Also, she speculated that farmers may increase the acreage that is grazed out this year because wheat prices are down.

Using the Kansas City Board of Trade March futures contract, Johnson said local wheat prices are down about 20% from a year ago. Some producers may decide it is better to allow younger cattle to continue growing rather than to sell them at a less-desirable weight and harvest a wheat crop for a less-than-desirable price.

Cattle feeders want animals to be larger in order to cut down the amount of time they have to feed them expensive corn to reach desirable slaughter weight and level of fatness.

Consumers likely will not see any effect at the retail level from higher feeder cattle prices, however. Market analysts said the cattle and beef markets are too segmented for short-term, seasonal moves in feeder cattle prices to be felt at the retail level.

Consumers could see price weakness for beef if the US dollar continues to strengthen, however, said Mike Zuzolo, analyst/broker at Global Commodity Analytics. This could stifle beef exports and put more beef on the domestic market.

Zuzolo said the futures markets may adjust to rising numbers of feeder cattle coming off the wheat fields by widening the difference between live cattle and feeder cattle futures. He said the market had removed a more normal premium earlier by not assuming a harsh winter.

So now if feeder-cattle bearishness plays out, they'll take it out of the spread between live cattle and feeder cattle, Zuzolo said.

One Plains trader pointed out that the USDA listed 1.92 million cattle on small-grains pasture as of January 1, which is 16% more than the 1.65 million listed a year earlier. The implication is that the market could see more pressure as these cattle come to market.