Cattle futures recovering after 10-year lows

YANKTON, S.D. - The cattle market is trying to recover after recently hitting 10-year lows in the spot month live cattle futures and falling below $100.

Prices were pressured by several fundamentals including bigger supplies and macroeconomic concerns.

Elliott Dennis, University of Nebraska-Lincoln Extension livestock marketing specialist, says he sees "uncertainty regarding trade, uncertainty regarding ... are we able to find homes for beef that's already on the market, the domestic market."

Speculators also pulled back from their record long cattle position in cattle futures, according to Todd Hultman, DTN Market Analyst. "We've just seen a long downward slide and some of it's been fueled by that non-commercial liquidation all the way down," he says.

However, the final straw was the August fire at Tyson's largest beef processing plant in Holcomb, Kan.

"That particular plant is Tyson's largest slaughter plant. It kills 6,000 head a day and that's on a five-day slaughter," John Nelson, with Producers Livestock Marketing in Sioux City, Iowa, says. "So that's 30,000 head of cattle a week, which roughly covers 5% to 6% of total national cattle slaughter."

Nebraska Gov. Pete Ricketts says the loss of the plant hit Nebraska cattle producers hard. "I had a chance to talk to officials at Tyson about the fire at Holcomb. They hope to be up and running again by the beginning of the year and sooner if they can and we think that's important," he says.

The concerns about tightened packer capacity and cattle backing up forced spot cattle futures prices to $93.40 on Sept. 9.

"It couldn't come at a worse time," Mike Drinnen, Nebraska Cattlemen Association president says. "You know, there's a lot of cattle for sale at this point in time and just a tremendous amount of equity drain. I mean it's well over $100 a head of equity drain."

Since then, other processing plants around the country have been picking up some of the capacity, but there are questions about how long that's sustainable, especially considering labor. "It's really important that they stay aggressive on the Saturday kills," Nelson says. "It will be interesting going forward whether they can do it ... week after week, 'cause that's what it's going to take."

Record profits are providing beef packers an incentive, but that also has prompted a USDA investigation on market manipulation.

Ricketts says he thinks the investigation is justified. "It's definitely something we should be taking a look at because when packers are making so much per head and the cow-calf guys aren't, it really does cause concern."

Drinnen says cattle producers have been understandably upset about the packer margins. "It's hurtful to the producers," he says. "We've taken the brunt of this and that's what hurts the most."

With cattle producers already beat up after a tough winter and spring flooding, few can sustain more losses.

David Houpt, with Farm Credit Services of America in Nebraska, says, "I've talked to several people, actually, who either want to reduce the size of their cow herd or just get out entirely. I've heard comments like 'this just isn't fun anymore.'"

Frederick, S.D., cattle producer Eric Sumption says, "The biggest fear there is, are we going to lose producers? Not only young producers, even middle- to upper-age producers?"

As far as the outlook for cattle prices, there are mixed views in the industry.

Steve Hellwig, who co-owns Hub City Livestock in Aberdeen, S.D., says he's optimistic about prices because sees a supply hole coming at the end of the year.

"I look for us to move out of this thing in the fourth quarter and I look for a sharp rally here December-January," he says.

The latest Cattle on Feed Report may back that up as placements were at only 91% of a year ago.

However, market analyst Todd Hultman is not as optimistic.

"It's hard to be very enthusiastic about telling you I can believe in $110 or $120 cattle again," he says. "It's just hard to see that right now."

Either way cattle producers are hoping prices will recover enough to get them to profitable levels.