Call the Market

Last Week's Enormous Cattle Slaughter and 2020

ShayLe Stewart
By  ShayLe Stewart , DTN Livestock Analyst
As 2019 comes to an end, putting this year's market into perspective is essential as cattlemen prepare for 2020's opportunity. (Photo by ShayLe Stewart)

If you've watched a western movie or two, the historic Doc Holliday isn't a stranger to you. Time and time again he's known to be a gambler, gunfighter and dentist ... puzzling, I agree! Being a gambler and gunfighter go hand-in-hand, but a dentist? That's just a peculiar and cringing twist! After doing some thinking though, isn't the 2019 cattle market the same way? Normal in some natures, good in others and downright bewildering in other aspects. To add to the peculiarity of this year's market, did you hear about last week's enormous cattle slaughter coming in at an astonishing 679,000 head? Upon hearing the news did you look at the calves you just fed and say, "Hell, you might be worth something after all?" Or did you look up to the sky, shake your head and say the ever-famous Doc quote, "There's no normal life, it's just life, get on with it."

With the Tyson packing plant in Holcomb, Kansas, processing cattle again, feedlot managers went to bed last week thinking about the beauty of packers competing against one another for fats; packers processing more cattle than normal; and beef demand holding strong in a seasonally weak time. And, in the back of their minds, they know first quarter fat cattle supplies are usually always the tightest. So, if packers are hungry now for cattle, just think about the cash that is yet to be paid next year for fats.

But any good cattlemen who's been around the block a time or two knows if projections tout one song too loudly, the market is liable to go a direct 180 degrees in the opposite direction and leave everyone who thought they knew something with their jaw on the ground and pockets empty.

So, what's the big picture? Why was last week's slaughter so aggressive? Boxed beef prices have slowly been eroding, and packer competition ... let's get real! What's going on with this frivolous 2019 market and what implications are held for the nearing 2020 market?

Last week's slaughter can be easily understood by analyzing a couple of different components. First, last week followed a shortened-holiday week. Just like any other business, packers have a shortened week as employees are off for the holidays, and they may even take a little extra time to clean and work on equipment. Secondly, as many know already, the packing plant in Holcomb, Kansas, is up and running again. Though the plant isn't at full operational levels, adding more cattle to the mix will greatly affect weekly kills. Lastly, the weather cooperated. Leading up to the Thanksgiving holiday, the weather was tough on cattle producers. It was tough trucking calves to feedlots, fat cattle were starting to pack some mud and when the weather is cold and pens are slick, everything moves slower and takes longer.

But what about these kill levels? Was it a one-week fluke or are packers looking to press hard for a while? And what will happen as readily available fat cattle supplies start to dwindle?

Lofty kill levels are good for the cattle market. If packers are vigorously processing cattle, it means they are making money, and when packers have an opportunity to capture profits, they don't squander it. Thankfully processing cattle at such speeds is going to help feedlots turnover pens and liquidate current inventory, which will help make more room for incoming feeders and keep the cash cattle market vibrant. And don't forget about the last Cattle on Feed (COF) report -- remember when placements were reported at 2.48 million head, 10% more than 2018 figures? Thankfully, with beef demand holding remarkably well both domestically and internationally, packers are incentivized to keep processing cattle that will eventually work through the latest placements in the COF report.

As for tighter fat cattle supplies and the 2020 market, 2019 is aligning the stars for a healthy 2020 and wins for all sectors of the cattle industry. With there being an anticipated smaller cow herd around the countryside, there could be fewer calves to sell next summer/fall. Fewer calves equates to higher prices from packers to feeders, and with the African swine fever epidemic, global protein supplies will be tight, which could keep packer's margins high as beef is widely sought after.

Nevertheless, 2019 keeps ringing the bell repeatedly with new surprises and cattlemen anxiously await the upcoming 2020 market. But as 2019 comes to an end, there are some interesting facets to look at and reflect upon. When comparing Actual Slaughter Data of 2018 compared to 2019, total slaughter (which includes steers, heifers, cull cows and bulls) sits at 31,647,106 (up 14% from 2018), total steers processed in 2019 sits at 15,634,076 (up 10% from 2018) and total number of heifers processed comes in at 9,368,101 (up 19% from 2018). Given there is roughly two and half weeks left in 2019, hopefully there are no major surprises to close the year. However, as time etches closer and closer to 2020, cattlemen are eager for the opportunity a new year always presents.

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

(BE/CZ)

ShayLe Stewart