Cattle price prospects continue to have long-run uncertainty due to a number of factors, South Dakota State University risk and business management specialist Matthew Diersen said in his “In the Cattle Markets” column for the Livestock Marketing Information Center.
Dry conditions out West and feed costs are two key variables.
“The dry conditions in the western U.S. continue to bring long-run uncertainty to cattle price prospects,” Diersen said. “Feed costs tied to grain prices have increased steadily over the past six months, largely tied to strong export markets for corn and soybeans.”
Hay prices also provide part of the picture and show a little different market response.
“A look at hay prices suggests that market has been responding differently,” Diersen said. “The NASS U.S. hay price for January 2021 of $157 per ton was up $2 per ton from January 2020. … Across the Plains states, the prices were higher, except for a slight decrease in South Dakota, suggesting the area is the place to monitor prices moving forward should demand from the west increase further.”
The next update on the hay situation will come in May.
“The next comprehensive measure of hay demand will be the May 1 ending stocks estimates released in mid-May,” Diersen said. “At the national level, the May 1 stocks projection by the LMIC is 19.5 million tons. That would be a slight reduction from the 2020 level, but greater than in 2018 and 2019, with prices inversely related to stocks levels.”
The hay situation in May will be weighed against expectations and recent history.
“Winter use tends to be 75% of Dec. 1 stocks plus a few million tons,” Diersen said. “That implies a typical winter use of 66.6 million tons for 2020/2021, implying May 1 stocks of only 17.4 million tons. Actual May 1 stocks below that amount would indicate strong demand, a tenuous ending stocks situation, and sharply higher price expectations.”
Diersen said another factor is the pasture insurance situation.
“Another less familiar metric to follow related to the feed situation would be indemnities tied to Pasture, Rangeland, and Forage (PRF) insurance,” he said. “The first insurance interval, January-February, just ended so indemnities are expected soon in affected areas with coverage. For calendar year 2021 there are 201 million acres insured nationally, compared to 160 million acres insured in 2020. … While the growth in acres insured was large, pasture remains a relatively less-insured crop.”