Post by Glenn on Apr 14, 2013 21:39:05 GMT -6
A COLLAPSE IN THE FEEDER MARKETS
The chatter last fall was where would feeder cattle be found this spring. Calves were hard to find and expensive. Farmers looking at high wheat prices did not seem interested in winter grazing deals. Antidotal estimates ranged from half the cattle on winter grain fields as last year up to 80%. People laughed when government estimates featured higher numbers.
The large feeding companies had backgrounded cattle in grow yards attempting to assure a supply. Now in a surprise development in the replacement markets, feeder cattle prices are dropping like a rock and everybody is trying to sell. The freefall is leaving many stocker operators in a lurch. Most have been waiting for a spring rally to sell their feeder cattle. Now all are deep in the red on breakevens.
The justification for the drop is not irrational. Several factors are converging to crash the markets.
Premium based deferred feeder cattle futures encouraged holding and early rains in central Texas and Oklahoma provided the pasture to do so.
More grazing in the southeast has developed allowing many farms to host a stocker operation on winter grain fields.
Feedlots have been in red ink for a year and the appetite to purchase replacement cattle has been dampened if not killed. This has caused loss of buyer interest and has caused many feedyards to shut down.
Following many months of smaller placements, March and April are appearing to top last year for placement numbers making many feeders afraid cattle may never sell high enough to margin a profit.
This is not all the bad news for stocker operators. Bids of dollars under futures prices are causing some to lose faith in the relevance of the feeder futures. Traders stuck with cattle purchased even the board at 750# are finding bids dollars under the board. Heavy cattle are being discounted 7-8 cents -- well above normal slides.
The damage in the beef business up until now has been primarily the processors and feeders. Now they are joined by the stocker operators. Can the breeder be far behind?
The chatter last fall was where would feeder cattle be found this spring. Calves were hard to find and expensive. Farmers looking at high wheat prices did not seem interested in winter grazing deals. Antidotal estimates ranged from half the cattle on winter grain fields as last year up to 80%. People laughed when government estimates featured higher numbers.
The large feeding companies had backgrounded cattle in grow yards attempting to assure a supply. Now in a surprise development in the replacement markets, feeder cattle prices are dropping like a rock and everybody is trying to sell. The freefall is leaving many stocker operators in a lurch. Most have been waiting for a spring rally to sell their feeder cattle. Now all are deep in the red on breakevens.
The justification for the drop is not irrational. Several factors are converging to crash the markets.
Premium based deferred feeder cattle futures encouraged holding and early rains in central Texas and Oklahoma provided the pasture to do so.
More grazing in the southeast has developed allowing many farms to host a stocker operation on winter grain fields.
Feedlots have been in red ink for a year and the appetite to purchase replacement cattle has been dampened if not killed. This has caused loss of buyer interest and has caused many feedyards to shut down.
Following many months of smaller placements, March and April are appearing to top last year for placement numbers making many feeders afraid cattle may never sell high enough to margin a profit.
This is not all the bad news for stocker operators. Bids of dollars under futures prices are causing some to lose faith in the relevance of the feeder futures. Traders stuck with cattle purchased even the board at 750# are finding bids dollars under the board. Heavy cattle are being discounted 7-8 cents -- well above normal slides.
The damage in the beef business up until now has been primarily the processors and feeders. Now they are joined by the stocker operators. Can the breeder be far behind?
