CALF News Aug./Sept 2018

41 CALF News • August | September 2018 • www.calfnews.net Anderson projects Southern Plains calf prices in the $150s this fall. Prices should be helped by continued low grain prices that will likely see more pressure from large crops this fall.“First off, we will have more calves on the market as cow numbers expand,” he says.“But like with feeder cattle, I have been a little sur- prised at the strength in the calf market. “For 2019, I have falling calf prices as supplies expand. I think we have seen lower prices in Texas, particularly out in smaller markets, as numbers nationwide expand. “As numbers expand, I expect we’ll see more discounts for calves that aren’t viewed as perfect. With more supplies buyers can be choosier.” Anderson says the futures market has provided “a good opportunity to hedge calves if you are interested in doing something. As of mid-July, the feeder contract was $150 for the fall. That implies cash calf prices something higher than that depending on your local basis.” He notes that corn prices will likely remain under pressure with continued high grain stocks and expected high yields.“I expect cash prices to be rela- tively close to last year’s prices,” Ander- son says.“Omaha prices were in the $3.00 to $3.20/bu. range through the last half of last year.” Lenz also sees continued pressure on grain prices due to another large crop that’s projected, as well as lingering pressure from trade squabbles. With the potential for feed and cattle price volatil- ity caused by potential trade problems, a good hedging strategy may be helpful in managing price. However, Lenz says the continued imbalance of futures prices and basis hampers risk management opportunities. For example, in mid-July, the cash trade for finished cattle jumped by $5 to $7/cwt. However, the price move was not reflected in live cattle futures, which closed lower. Lenz says more “hedgers” are using futures and options spreads to manage risk. “It’s still not a true hedge,” he says, but a use of the tools available. Anderson says that even with the basis-futures price difference, produc- ers and feeders should cover their risk when there are opportunities.“I think folks ought to take advantage of the opportunity to grab a profit if they can on at least part of what they produce,” he says.“If you want to roll the dice on some, well, that’s great, but grab it while you can.” Demand even higher In July, the U.S. Meat Export Federa- tion (USMEF) reported that U.S. beef exports set a new value record in May while also increasing significantly year- over-year in volume. Beef export volume was 117,871 metric tons in May, the sixth largest on record,“valued at a remarkable $722.1 million,” USMEF says. Through the first five months of 2018, beef exports were up 10 percent in volume to 547,157 metric tons, while export value was $3.32 billion, 21 percent above last year’s record pace. USMEF says exports accounted for 13.6 percent of total beef production in May, up from 13 percent a year ago. Beef export value averaged $313.39 per head of fed slaughter in May, up 18 percent from a year ago. The January-May average was $317.69 per head, also up 18 percent. “Strong export demand is a key for us,” Lenz says.“So far, tariffs are leaving us alone. That needs to continue.” “There are a lot of reasons for uncer- tainty – tariffs, trade wars, weather, etc.,” Anderson adds,“but it seems like beef demand has been carrying us through.” He says cutting into the strong export numbers “would hit prices just when we are expanding supplies. Trade problems should force our crop prices lower, but weather problems would likely make prices go up.” CME Group’s chief economist Blu Putnam is worried that U.S. trade wars with China place American crop and livestock producers in the crosshairs. In his mid-July commentary, Putman said, “China can match us tariff for tariff, and U.S. agriculture is a top pick for China retaliation.” He said major pressure on U.S. soy- bean prices could get worse, with large supplies from Brazil and Argentina eager to fill China orders for beans. Putman also believes the 4 percent growth in Duane Lenz of CattleFax sees $115-$120 fats this fall. A&M’s David Anderson says fed prices were better than he expected. Photo courtesy Texas A&M Will Chinese tariffs and NAFTA squabbles hurt corn prices even more? Continued on page 44 