Sort & Cull

If I had to explain the 2021 live cattle market in one sentence, I'd say something along the lines of: "2021 was the year of extraordinary consumer demand, unbreakable boxed beef prices, mediocre processing speeds and blatantly offensive cash cattle prices."

We used to believe in market fundamentals such as supply and demand; but when demand is booming both internationally and domestically, and the U.S. is going through a sizeable cow-herd reduction, you can't honestly say these current cash cattle prices are justified. Looking through years' worth of data, it used to be nothing for the market to sell over 100,000 head of cash cattle in any given week. And, believe it or not, the weeks where only 70,000 head sold were seen as an oddity. Yet, here in 2021, the market has yet to see a week where over 110,000 head have traded in the cash cattle market; seeing anywhere from 65,000 head to 80,000 head trade in a week is becoming the new norm.

As we continue to hunt for clues that could shine light on what's next to come for 2021 and the months ahead, one of the biggest challenges feedlots are going to face is how packers are buying cattle. Part of the reason packers no longer have to support the cash cattle market in price or volume is because they've learned how to play the game and outpace any potential price discovery that feedlots may yearn for by committing cattle for deferred delivery.

When packers buy cattle in the cash market, they have two options: they either buy them for nearby delivery, which is in the next two immediate weeks, or they buy them for deferred delivery, which is the following 15- to 30-days. Last week packers bought 77,209 head of cattle in the cash cattle market. Of that 72% (55,340 head) were purchased for nearby delivery, while the remaining 28% (21,869 head) were purchased for the following 15- to 30-day delivery.

This may not seem like an unsettling problem. (I mean, come on, what's really 28% of the market?) But when you take into account that packers are also pulling cattle from their grid and formula deals, you quickly understand that by them constantly stocking their upcoming needs through deferred delivery, the cash cattle market stands very little chance of ever regaining any leverage.

The exciting thing about the time that's left in 2021 is that the cash cattle market stands to see a sizeable rally given that the numbers of market-ready cattle are going to favor feedlots' position. Whether or not the market will actually see the advancement remains unknown as packers have figured out another way to avoid supporting the cash cattle market and allowing feedlots to chase true price discovery.

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Later this week, I will be signing out of the markets for a while to welcome our first baby to the family! Through my maternity leave, DTN will continue to serve its livestock customers and keep you up to date on all the pertinent market information. If you have any questions while I'm away, feel free to email me.

ShayLe Stewart can be reached at ShayLe.Stewart@dtn.com

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