Call the Market

Drought Conditions and the Cattle Market Could Go Head to Head

ShayLe Stewart
By  ShayLe Stewart , DTN Livestock Analyst
Drought conditions are likely to affect this summer's cattle market in more than one way. (Photo by Adam Hartman NOAA/NWS/NCEP/Climate Prediction Center)

If there's one thing that seems to ring true throughout the cattle market -- regardless of the year, regardless of the President sitting within the oval office and regardless of any other true market indication -- it's that, what the majority thinks the cattle market will do, it will most likely do the opposite.

Clint Eastwood may be most known for his famous western film roles, but deep down in his heart he may have had a love for the cattle market, as he once said, "there's a rebel lying deep in my soul. Anytime anyone tells me the trend is such and such, I go the opposite direction. I hate the idea of trends; I hate imitation -- I have a reverence for individually." And if that doesn't perfectly depict today's cattle market, I don't know what does.

As market analysts, we love to study trends. For the most part, they are safe, they are comfortable, and they are reliable (most of the time). But as all good things eventually come to an end, there are disruptions in the markets that make relying on trends nearly impossible. Last year (2020) is a prime example of such a disruption, and it has made us all grow in ways that we couldn't have imaged pre-COVID.

As we look to the second half of 2021, there's been an underlying theme that keeps buzzing throughout newlines, market reports and through hopeful text messages shared with one another -- the belief that better prices are on their way! In years past, the fat cattle market has more often than not been able to make a spring rally before the dogdays of summer appear and front-end supplies of market-ready cattle become overbearing.

With the oddity in placements last year, feedlots sit in a better position this year than they have in years past as front-end supplies of market-ready cattle are tighter. Tighter supplies give feedlots the leverage needed to summon higher prices, and with demand being as robust as it is, packers will most likely be willing to pay up in order to keep their consumers served.

But before we jump and skip frolicky into this spring, it's best that we slow down and note any possible road bumps that could develop along the way. What hiccups could develop between now and sometime next fall that could undermine the fat cattle market?

That, my friends, is drought.

The graphic coinciding with this column accurately portrays just how vast the drought situation is here in the United States. Furthermore, when analyzing these drought conditions, it's important to remember the supplies we carry into the summer, or lack thereof. With hay prices on the rise and the availability of summer grass becoming harder and harder to come by, some producers in severe drought areas are already culling down their herds, and that's what could undermine the fat cattle market's ability to rally exponentially -- a saturated cull-cow market.

Looking back at beef cow slaughter data over the past few years, 2021 has sharply outpaced 2017, 2018, 2019 and 2020 year-to-date figures. For the week ended March 27, beef cow slaughter has totaled 837,000 head, which is 232,300 head more than in 2017; 116,100 head more than in 2018; 96,200 head more than in 2019 and 19,300 head more than in 2020.

With drought conditions expected to remain at least through summer, it wouldn't be surprising to see 2021's beef cow slaughter numbers rise as producers wrestle with rising input costs and the longing to keep their cows. This not only has implications on the nation's beef herd, but it also could be a thorn that develops in the fat cattle market's quest for sharply higher prices.

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

ShayLe Stewart