Talk about cattle markets these past few weeks has focused on the cow and fed heifer slaughter. Beef cow slaughter has been strong since this time last year and has been impact by the western and North Plains drought through this year. Fed heifer slaughter has also been elevated for the past two years. Clearly, the implication is herd liquidation and the discussion is then of the extent of the smaller size of the beef cow herd in the January report. The story for some time is that tighter numbers and better markets are coming. But when? Sometime in the remainder of 2021 or how far into 2022?
A number of other reports and information pieces are useful in this context. The combined fed steer and heifer slaughter are revealing. The total packing capacity for the domestic industry is reasonably in the neighborhood of 525 thousand head per week. Weekly totals through 2018, 2019, and 2020 were routinely above this amount implying a strong Saturday slaughter. However, while Saturday kills have remained strong through 2021, weekly totals were less likely to be above 525 thousand and below the prior three-year levels. This is evidence that some plants with the total mix are operating a above full capacity and others have struggled through the recent year. Examining placements from the Cattle on Feed report, with the actual and potential fed animal slaughter, suggests the large volume of animals on-feed more 150 days will not be depleted until well into December. Further, placements as revealed by the COF report this Friday will reveal if this problem persists well into next week. Given the anticipated high drought-driven placements through the month of September then the answer is likely, “yes.” Long time cattle market watchers know that the cattle feeding industry does not market its way out of problems but rather places its way out. Here the marketing opportunities are certainly befouled by the pandemic and its impact on plant capacities. Numerous industries are struggling with labor and packing is but one. The point is not to find blame but rather focus the search on the source of relief. Friday will be informative. It could be well into 2022.
What do the technicals say? The up trends that were established late last year in live cattle contracts were broken sharply and with clear conformation the first of September. There were not clear long-term trends in feeder cattle contracts with corn doing what it did over the late spring and early summer. But the trends in place since May were also broken with the down move in live cattle. I don’t think prices for either live or feeder cattle are headed lower, but the technical picture clearly says the up move from the improving market conditions has run its course. Returning to higher prices will require clear evidence that the fed beef animal slaughter system has backed up from running at absolute full capacity. Higher prices will require that resistance planes established in late August be broken. That will be the important signal.
The remaining fundamentals are interestingly solid across the board – excellent beef product prices with large volumes, excellent beef exports, and an economy with less uncertainty. However, Friday will be informative.