CattleFax’s Troy Applehans said there are many positives in the current cattle market. But there are also a lot of headwinds too.
Applehans spoke during the second session of the Colorado Livestock Association’s 2022 Fall Webinar Series, CattleFax Market Situation & Outlook recently.
“Obviously the drought situation, the geopolitical situation—the things that are happening regarding the Fed and interest rates that are spooking the markets a little bit. We know we’ve got plenty of headwinds,” he said. “We also know that we have plenty of opportunities out here in front of us.”
Applehans explained where the current cattle cycle stands and said typically there’s about a 10- to 12-year period between a high price to a high price or a low price to a low price.
“We feel like that we’re probably in the very beginning stages of this current cattle cycle,” he said. “Harvest numbers are starting to come down to a degree. (We) haven’t seen a significant reduction in harvest numbers quite yet.”
He believes packers are more willing now to harvest cattle at lower profits than have been observed during the past several years.
“When these harvest numbers start to decline, these cattle prices begin to increase. At some point as cattle prices continue to increase and Mother Nature allows us we start to begin to increase the cow inventory,” Applehans said. “We’ll get to a point and we’re probably out there into the middle of this decade.”
He believes at some point cattle prices will peak out and cattle inventory will continue to increase as well.
“That’s when the market tends to get to a point of an exhaustion phase,” he said. “And you begin to start to get the sell off within the cow inventory and this is really when the transition phase goes out there into late in this decade or early into the 2030s. That’s how traditionally these cattle cycles have worked.”
In 2018, there was some profitability, but really since then producers have been treading water.
“The full potential of this cattle cycle may not be able to be realized simply due to the outside influences,” he said. “We can see what inflation has done.”
It’s important to realize the impact of inflation going forward and how it affects the beef industry overall, and its influence on sustainability. Applehans thinks those second-, third- or fourth-generation farms or ranches that are still in business are the ones who have been able to do more with less.
One of the reasons why there can be more production with less cattle is the simple increase in carcass weights. Since 2000, there has been an increase in average weights by about 4 pounds per year. During the pandemic, carcass weights were some of the highest they’ve ever been.
Applehans is now seeing the changes in the supply situation because of several scenarios—increases in technology, animal husbandry improvements, and those carcass weights.
He believes overall, when looking at cattle prices it’s important to look at the futures pricing with regard to live cattle.
“This is the simply the average of the next year’s contracts on the live cattle,” he said. “We were stuck between that $105 and $125 for a long period of time. Now the futures are implying higher prices.”
Will prices get back to those levels? Applehans believes so.
“We certainly should go back to those levels,” he said. “We’re looking at the fed cattle price with regard to what we’ve been doing this year. We’ve held up very well to the summer timeframe, very similar to the way we did a year ago. Seems like we had a couple of packers that were certainly supporting the market.”
When it comes to cash bids for cattle, it’s been a little bit of an underperformer, not just for feeder cattle, but for fed cattle too. Things seem to have been stuck at $160.
Applehans does see higher prices ahead when looking at the overall supply of the outside supplies, with October down more than 800,000 head.
“We’ve really borrowed ahead on the supply of feeder cattle and calves simply due to the drought forced movement, lack of winter grazing availability that we’re going to see this year,” he said. “Where if we continue to borrow and the supplies are going to get tight.”
As for the calf market, there’s going to be a lot of calves selling if they haven’t already. Typically the lows in this segment come the last week of September or the first week of October.
Going forward calf prices tend to go up, and he sees that continuing through the end of the year and possibly into next spring.
But with the lack of winter grazing this fall, Applehans thinks it’s going to keep this calf market pretty muted, particularly in the southern Plains states at this point.
The price of utility cows—as many cows that have been killed this year, “this price has been phenomenal.”
“It’s held up very well—should provide very good support as we get out there into the November timeframe,” he said. “We tend to see the bulk of the cull cow market come to town. I think this is important for us going forward with regard to those that when it does start raining.”
For bred cows, the cycle highs were seen in 2014-15, and there’s a lot of $3,000 females out toward that time frame, according to Applehans.
“And quite frankly, we have to have an outlook as to what the calf market is going to do going forward. Those $3,000 females are probably still trying to pay for themselves if they’re still in the herd at this particular time,” he said.
Bred cow values have started to widen themselves out with regard to calf prices and a good guide going forward—if it does go into expansion mode—is to look at the fed steer values and bred cow values. If those continue to stay tight, be cautious.
“We got out there into big expansion mode we had to great cow values that were that were exceeding the total fed steer values and obviously it’s a little bit muted this year due to the drought and non expansion mode,” he said.
Kylene Scott can be reached at 620-227-1804 or [email protected].
