External factors have increased market uncertainty and make it more difficult to sort out the current market situation. In general, cattle markets appear to have reached a short term peak, which is consistent with typical seasonality. However, the run up in prices in the first quarter is more than just seasonal increases and reflects the underlying strength of supply fundamentals. Fed cattle prices flirted briefly with the upper $110s a week ago before retreating back to the $114-115/cwt. level. Boxed beef prices have moved to the $187/cwt. level, which gives packers decent margins at current fed prices. Feeder cattle prices likewise seem to have peaked and retreated slightly but it is hard to know if this is a seasonal peak or merely a disruption due to external factors.
Markets in general have been very concerned about the situation in Japan following the earthquake, tsunami and resulting nuclear threat. Japan is a major market for many U.S. agricultural products and implications range from short term disruptions due to damage to ports and electrical power disruptions in the country to longer term impacts related to damage to Japanese agricultural production and time needed to rebuild infrastructure. Add to that the continuing unrest in the Middle East and Africa and markets are understandably nervous.
These factors make it difficult to know if the current setbacks in cattle markets are temporary or whether markets are topping seasonally. It is even more difficult to determine if current boxed beef prices are leading to the demand limits that are anticipated with higher retail beef prices. There are certainly more questions than answers now and the answers will only come with time. Will the external factors settle down or escalate into more market uncertainty? Will cattle markets bow to seasonal tendencies or will market trends offset seasonality? When will demand limits kick in and put a lid on price increases? Cattle markets are navigating through uncharted waters with little experience from history to help guide us. The only recourse is to continue monitoring markets carefully as the dynamic situation evolves.
Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist