Livestock market fundamentals remain strong, but 'troubled' futures markets expected – Agweek

North Dakota State University livestock economist Tim Petry has some advice for people watching livestock markets.

“Keep your hats. The futures market will be nervous,” he said.

Tim Petry

Agweek file photo

The big moves in the markets last year were due to various factors and caused prices to rise sharply and then fall. These included liquidation of cattle, high demand for beef and low corn prices, among others.

The downward swings in recent weeks have largely been attributed to bird flu. While no herds of cattle were infected with the highly pathogenic avian flu strains that affected poultry herds, there were cases in dairy herds as well as a case in a person who worked at a dairy, scaring off investment funds in the beef markets, Petry explained. Concerns centered on a potential loss of demand for beef if cases occurred in the herds. The virus – renamed bovine influenza A virus in cattle – has not killed cattle like poultry, and although it can be spread through milk, pasteurization kills the pathogen.

“The futures market always overreacts to news because these are big mutual funds and so on and they don't want to lose money and they get a little scared. And that’s exactly what happened here,” Petry said.

So while futures markets plunged for about a day – and have since recouped much of their losses – cash markets in the sales barns remained incredibly strong, Petry said. And that's unlikely to change, because the fundamentals of the livestock market have remained the same, with tight supply and strong demand for products.

“Basically we are in very good shape,” he said.

A similar situation occurred back in September 2023, Petry said, when funds “overreacted” to a U.S. Department of Agriculture “Cattle on Feed” report that showed significantly more cattle than expected in feedlots. There was talk that there may be more cattle in the country than the USDA had previously estimated. However, Petry said the numbers in the report were easily explained by drought in the Southern Plains, which meant cattle that would have grazed winter wheat were placed in feedlots and record numbers of heifers were placed in feedlots instead of being bred.

Then as now, the large investment funds withdrew. But the truth about the ongoing decline in U.S. cattle herds has caused the market to climb back to record levels and has been “up, up, up” since December, Petry said.

And Petry still expects a correction on the futures markets today. Ranchers selling at the stables were still bidding high.

This has made risk management difficult for people buying cattle for feed, as high selling prices in stables combined with a downturn in the futures markets on which products such as livestock risk insurance are based, have created a difficult situation. But Petry believes that will correct itself over time.

“And if we continue to provide moisture in the south and keep more heifers out of the market, that will boost the market even further,” he said.

However, Petry believes there are other factors converging to keep futures markets nervous, including the corn market. The USDA, in the Prospective Plantings report, put corn acreage for the year at 4.6 million fewer acres than last year, which could mean less corn. And the drought, the epicenter of which is in corn king Iowa, could further deplete corn supplies and drive up prices, which could negatively impact livestock production. Add in geopolitical situations like Ukraine, Russia and the Middle East, and Petry said there's enough to keep things fresh.

One thing that will certainly make it more difficult to understand futures market fluctuations is the USDA's announcement that it will cancel the release of the July livestock report and discontinue county estimates for crops and livestock.

Petry said the July report was a big deal. The swine segment of the industry receives quarterly numerical reports and the beef segment has only received two, so there will only be one report in January. Petry said the July report was particularly important in determining whether producers were reducing or rebuilding their herds, and in providing an initial estimate of the calf crop for the year. More information is better, he said.

“If we don’t have that, then we’ll wait until Jan. 31, when the Jan. 1 report comes out, to even find out what the 2024 calf crop is,” he said. “It is a great loss for us and we hope something can be done.”

Agriculture groups in the US have echoed these views. The National Cattlemen's Beef Association called the decision “misguided” and said cutting reports will not have a major impact on the USDA budget.

“It is disingenuous that the same agency that touts its commitment to transparency in livestock markets would arbitrarily stop publishing reports that provide just that,” NCBA vice president of government affairs Ethan Lane said in a statement.

“NASS’s two total U.S. cattle inventory reports, released January 31 and late July, provide farmers, ranchers, researchers and other data users with a complete picture of U.S. cattle sector inventory levels at the beginning and middle of each year. This allows for a fair assessment of the cattle market for the next six months. The elimination of the semi-annual report means that the market is in the dark for the second half of the year, market transparency disappears and market volatility increases. Data will only be available to those who can afford to collect it, further threatening competition in the packaging sector,” Zippy Duvall, president of the American Farm Bureau Federation, said in a statement.

Jenny Schlecht is the director of ag content at Agweek and serves as editor of Agweek, Sugarbeet Grower and BeanGrower. She lives with her husband and two daughters on a farm and ranch near Medina, North Dakota. Reach her at [email protected] or 701-595-0425.