The cattle industry has many moving parts that can give mixed signals as to the direction of the market.

This past week cattle slaughter numbers were 7% higher than a year ago as packers are trying to work through the holiday backlog. Even though this number is high, supplies are expected to be down 6.5% for 2023.

Between now and April it is estimated that fed cattle numbers will be 4.7% lower than a year ago. Currently, the market is in the $156 range, which is over 12% higher from this time last year. The short supply is well known, so we have to assume that these prices have been built into the futures market.

The issue that we are all dealing with is the higher costs of grain and the shortage of hay. US hay stocks are at the lowest level since 1974, thus increasing the costs to most producers.

Feeder cattle markets are currently at $180. This market will remain closely tied to the grain markets. Stockers being held for grazing have to contend with the continued drought in the west, which should pressure spring prices to an extent.

Many progressive backgrounders have worked with nutritionists to develop low-cost rations that mainly use by-products rather than whole grains. Recently, we have seen a substantial savings in the cost of gain using these commodities. While it may seem that byproducts are the answer to a cheaper feed source, they come with challenges. The biggest issues being storage, access, and handling. To help overcome these issues you have to keep an open mind to the timing and availability the markets have to offer.  A lot of times when you hear byproducts you thinking of DDGs and brewers grain, but there are many other options out there (ie. coffee grounds, flour, corn syrup). These types of byproducts are typically from a non-traditional market, therefore it requires much patience and thinking outside of the box. Sometimes the most cost effective byproduct will catch you by surprise. You have to be diligent in researching these markets looking for best options that fit into your feeding program. This trend will continue in the future as producers are seeing savings of up to 30% on their feed bills without a decrease in performance.

With these market changes our thoughts are starting to shift when it comes to using LRP to establish a minimum floor on feeder cattle. Sixty days ago, we thought the shortage in cattle numbers provided some upside potential in the market. Because of this we floored cattle a couple of dollars under the market to save on costs. This turned out to be the correct thing to do as the cattle markets were trending higher.

Today we are leaning toward the highest floor that we can establish. The reason for this is that the Feds continue to raise interest rates that directly lower the consumers disposable income. When this happens the consumer generally starts stretching the food dollar by substitution of products. We have already seen this start to happen over the last few months. The second option is that the consumer may choose cheaper cuts of beef or may even switch to buying more pork or chicken.

The feeder cattle market is still good as most producers can establish good profits depending on their feed programs. What we are now looking at is to establish the most profit possible in this market to eliminate the chance of falling prices as these economic factors work themselves out. This may be a time when you will choose to maximize profits for a few dollars extra.

Are you unsure of what to do?

My agents and myself are well versed in these programs and in knowing how to fit them to meet your needs. We use these programs on our own cattle that we raise and can explain our strategies to see how they can benefit your operation.

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