Negotiated cash fed cattle trade was light to moderate on moderate demand in the Southern Plains through Tuesday afternoon, according to the Agricultural Marketing Service. Prices were steady to $1 lower in the Texas Panhandle at $139-$140/cwt. And steady in Kansas at $140.
Elsewhere, trade ranged from limited on light demand to a standstill. Live prices last week were $146 in Nebraska, $142-$148 in Colorado and $144-$147 in the western Corn Belt. Dressed prices were $230-$232.
Cattle futures lost more ground Tuesday, as cash fed cattle prices ran out of steam in the South and Corn futures rose.
Feeder Cattle futures closed an average of $1.83 lower (87¢ lower to $2.37 lower).
Live Cattle futures closed an average of 93¢ lower (25¢ to $1.27 lower), except for 7¢ higher in the back contract.
Choice Boxed beef cutout value was $3.05 lower Tuesday afternoon at $255.24/cwt. Select was 78¢ lower at $242.35.
Corn and Soybean futures were supported by the sluggish planting pace.
Corn futures closed mostly 3¢ to 8¢ higher. Soybean futures closed 5¢ to 10¢ higher through Jly ‘23 and then fractionally higher to 4¢ higher.
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Major U.S. financial indices closed mixed Tuesday as investors grasped for some stability and waited for the release of the Consumer Price Index Wednesday.
The Dow Jones Industrial Average closed 84 points lower. The S&P 500 closed 9 points higher. The NASDAQ was up 114 points.
West Texas Intermediate Crude Oil futures on the CME closed $2.74 to $3.33 lower through the front six contracts. Pressure included continued concerns about COVID lockdowns in China. That was $8.24 to $10.01 lower in those contracts over the last two sessions.
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Feeder cattle loans grew in size and the number of months before maturity on those loans increased over recent years, according to Elliott Dennis, Extension livestock economist the University of Nebraska-Lincoln. He provides insights about the impact of rising interest rates on cattle loans, in the most recent issue of In the Cattle Markets.
“Between 2000 and 2009, the average number of months before maturity on feeder cattle loans was 8.82 months. Between 2010 and 2019 that increased to 10.74 months. Now, between 2020 and present it has increased slightly to 10.92 months,” Dennis says. “At the same time, the average loan size and total feeder cattle loan volume have increased. The average loan size over the last 10 years has been about $80,000.”
Ultimately, of course, higher interest rates mean raising cattle with borrowed money gets more expensive.
Dennis explains feeder livestock interest rates are primarily tracked by the Kansas City and Dallas Federal Reserve Districts.
“Interest rates in these two primary cattle feeding areas are different from each other and reflect different supply and demand of money and relative production risks,” Dennis explains. “In 2022:Q1, the Dallas Federal Reserve feeder cattle interest rates were 5.42%. This rate has been relatively unchanged since 2020:Q2 fluctuating between 5.23-5.42%. In 2022:Q1, the Kansas City Federal Reserve feeder cattle interest rates were 3.92%. This rate has been much more variable, oscillating between 2.90-5.03% since 2020:Q2.”
Further, Dennis points to the inverse relationship between feeder cattle interest rates and average pastureland values over time. Generally, speaking, he says the cost of owning pastureland increases as the cost to raise feeder cattle decreases and visa vera.
“Lower interest rates cheapen the cost to raise feeder cattle. These lower costs create more economic incentives for (a) new producers to enter the market, (b) existing producers to increase the intensity of their operations, or (c) some combination of (a) and (b). Ultimately, this means that the demand for feeder cattle is passed down from feedlots to cow-calf/stocker producers who then expand by competing for a limited land base, raising land prices,” Dennis explains.
“…The potential for higher interest rates this year could raise the cost of production in the short term for cattle producers by making debt more expensive. However, it does ease some of the longer-term pressure of rising land values which landowners capitalize into pasture rental rates,” Dennis says.