Current Livestock Market Requires Careful Planning

The first half of 2004 has seen mostly bullish cattle markets, and there is no sign of prices retreating. However economists urge producers to weigh the benefits and risks when making fall marketing decisions, according to YourCattle.com.

Currently, average breakevens are projects to be in the upper $70s per hundred-weight for July and August closeouts of feedlot cattle, which should result in significant positive returns if current cash price forecasts hold true,” says Kansas State Agricultural Economist Rod Jones. But due to the increasing price of feeder cattle, break evens will increase rapidly into the fall, as these higher priced cattle begin to finish, Jones says.

“Feedlot profitability will be a crucial factor driving marketing decisions the second half of 2004,” says Lee Meyer, an Extension Agricultural Economist with the University of Kentucky. “Prices remain at astronomical levels, surpassing even the most optimistic projections made in the first quarter.”

But with feeder cattle prices in the Midwest running between $105 to $115 per hundred-weight range, many people are starting to wonder if the feeder prices are justified.

“It’s not clear that feedlots will remain profitable into the fall based on prices they are currently paying for feeders,” Meyer says. He believes that current feeder cattle prices are based on a very optimistic view of the fall market, which most likely includes regaining the Japanese export market, strong boxed beef prices, stable grain prices and only moderate increases in slaughter weights.

Average returns are currently expected to decline and perhaps turn negative by November unless slaughter cattle prices end up higher than current forecasts, says Jones.

Meyer says if there was one factor by which to characterize the market, it would be uncertainty. The two recent “inconclusive” BSE tests – which came back negative days later – sent the future’s market on a roller coaster ride, showing the volatility in the marketplace.
“While some potential market upside does exist, considerable downside market risk is also present,” Meyer says. “Producers planning to market cattle in the fall may want to consider forward pricing opportunities that currently exist as a way to lower the risk. The best marketers aren’t the ones who always well at the best possible time; they are often the ones who try to always sell at a good time.”