Beef demand in 2017 spotlightBeef demand in 2017 spotlight
Price rally not likely to persist through summer due to higher placements.
June 5, 2017
The story of 2017 has been one of beef demand, according to a report from Iowa State University’s department of economics. Big supplies, at the cheapest prices in years, have sparked retail, food service and export buying interest, and they keep coming back for more.
“Through March, beef exports were up 22% compared to the first three months of 2016. Packers' motivation to meet demand has supported maintaining fed cattle purchases. Packers are competing against one another for the first cut of cattle more and more and the offerings of market-ready fed cattle have become greener. Available supplies are arguably more current now than they have been in years,” the report noted.
USDA data show Iowa/Minnesota prices rose to $143.77/cwt. during the week ending May 7. Iowa State said this was the highest weekly average fed cattle price since mid-August 2015 and also a represented 50% increase from mid-October, when 2016 prices bottomed at $95.93/cwt.
The June and August 2017 live cattle futures contracts also gained over $30/cwt., or 35%, on average, according to the report. October and December 2017 live cattle futures contracts gained over $20/cwt., or 22%, on average.
However, the report said the rally will likely not persist through the summer.
“Cattle on feed placements were large in March and are expected to be so again in April. Packer margins have tightened in 2017. As soon as beef supplies in the marketing pipeline are replenished the market will likely soften and become focused on larger summer supplies. This is the time to seriously consider acting to get some price protection. Look at futures, options, or sales for future delivery.”
The report explained that opportunities appear and disappear as markets continue to adjust. As such, it said producers should look for chances to take advantage of those opportunities.
“When profitable margins present themselves, careful consideration should be paid to locking-in those profits. Remember the goal of price risk management is to minimize risk by limiting losses and increasing the probability of profit.”
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