I have held off on my cattle updates lately because the market has been so volatile. It still is extremely volatile but I think we have a better understanding of where we’re at now.
Beef Shortage: There is no beef shortage. There is a supply problem. Supply chains have been disrupted and were having a hard time correcting them because COVID-19 is complicating the restructuring. Packers have been ordered to continue processing but people are sick and others are not showing up to work. This slows the process. This week we actually increased harvest by about 38 million pounds (chart below) but we still have over 1 million cattle that are backed up the supply chain which could take months to correct. Feedlots are changing rations trying to stretch cattle as far as they can but they can only go so far. When those cattle get to the packer they will probably receive huge discounts for carcass weight (anything outside of a 600-900 lbs carcass range receives a discount that can be up to $30 cwt) and amount of fat (anything with fat over 1.2″ will be discounted up to $15 cwt). Hopefully, the packers will reduce the discount guidelines or waive them for the time being but I doubt it.
Cattle Inventory and Prices: Stockyard receipts are off from last year. We are currently 30,000 head behind where we were last year but the market did have some bump this week, $2-$3 across the board. This week’s Southeast Direct Feeder reports show 3900 cattle receipts compared to 1800 receipts last year. 52% of those are heifers which gives the clue that producers are not building herds anymore and the cattle cycle should bottom. I was on a webinar with Chris Prevatt, University of Florida Livestock Economist, last night and he was saying that predictions before COVID-19 estimated that the bottom of the current cattle cycle would hit from 2019-2021. Well, it should bottom this year and hopefully start to uptick next year. Several projections that I have seen show an upward trend over the next 5 years. One long-range projection showed an upward movement over the next 10 years.
What to am I going to do: It’s going to be a while before the market stabilizes to where we can plan better but there are some things we can do.
- Prepare feed and forage reserves. I like to keep about 1-2 months’ worth of reserves for those summer droughts.
- Cut cost not corners
- Seasonal selling is going to be more difficult. We want producers to have a select calving season so I am not saying that we need to get away from that. What I am saying is that producers may have to get creative in marketing their cattle. With the market so volatile, producers must track the market this year and pull the trigger when the market hits. I would not hold on to cattle his year hoping for a few extra dollars.
- Consider weaning and growing out calves. If the market isn’t good and you have the resources, it may not hurt to explore taking those calves up to 700-800 lbs.
- Using risk management. This is mainly for larger producers who can sell load lots. Watching the market and using put options to secure a price floor could be beneficial to your operation. I heard about a guy who didn’t use risk management this past March and lost a potential $75,000 on some feeders when the market dropped. This could have been avoided with a simple put option.