Market Conditions Provide Cautious Optimism

US - As the drought continues to plague the Southwest, surprisingly, wheat plantings and emergence are on par with prior five-year averages according to Monday’s Crop Progress report.
calendar icon 10 October 2011
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However, the longer-term outlook of these acres being able to support the number of calves they have in previous year’s is much more suspect. Even as a number of calves that typically would have been backgrounded on these acres are already residing in feedlots, there remain many that will surely be looking for a home.

Therefore, interest is generating in the southeastern section of the US for housing winter cattle. Given the uncertainty surrounding wheat grazing at this point in time there is an opportunity for producers in other regions to step into a backgrounding role with potential for profits.

Granted, cattle procurement costs will be steep and other input costs do not appear to be letting off the pedal – although the recent drop in corn will surely help. Still, with the expected shortfall in cattle numbers throughout the winter and spring, the outlook is slipping into “glass half full” territory.

With this endeavor gaining momentum, a few caveats must be addressed. The most important one is that producers in this region are less familiar with managing a backgrounding operation. Compared to the much more common cow-calf operation, backgrounding requires a more intensive management regime that older producers or those with off farm jobs cannot handle efficiently.

Second, winter grazing is an option in the southeast by way of ryegrass, fescue, clover and other less common winter forages; however, the higher stocking rates that are typical in a backgrounding operation imply that soil nutrient management must be more heavily scrutinised than producers are used to with their cow-calf operation.

Furthermore with respect to forages, although most southeastern states – excluding Georgia – have received much needed precipitation in the latter half of the summer to help alleviate dry pastures and hay ground, many have depleted hay stocks following two harsh winters and less than ideal hay production over the previous two summers.

Third, facilities across many operations are not sufficient to handle heavy use since most calves will require multiple trips through the chute for various vaccinations and veterinary care. Finally, as Mississippi state veterinarian Jim Watson recently pointed out, the inter-state movement of cattle can introduce another hurdle in the process.

Even with these considerations, given the current market conditions and tight supply situation, the potential exists for producers in this region to be cautiously optimistic about winter grazing.

The Markets

Cattle prices have been steady to slightly higher following last week’s $5/cwt boost. Wholesale beef prices have been mostly steady at $183/cwt and $170/cwt for Choice and Select, respectively.

Feeder prices were strong last week in Montana while Oklahoma and Nebraska were steady. Calf prices were mostly steady in Montana and Oklahoma but strong in Nebraska.

Corn took a hit Friday with the quarterly Grain Stocks report revealing more corn in storage than expected, at 1.128 billion bushels versus pre-report estimates of 0.962 billion. Corn futures dropped below $6/bushel on the December contract as a result, but have since risen.

Cattle futures rallied last week due to the strong cash trade and have continued that trend this week thanks to the fall off in corn.

TheCattleSite News Desk

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