Fat Tuesday with Mike Sands | Cattle Market Pressure Points

We walk through the week’s biggest cattle market drivers, from JBS plant closures to Iran-related macro moves that shift energy prices and market mood. Then we zoom into the on-the-ground fundamentals: screwworm surveillance, changing feedlot placements, record-slow marketings, and the risks that come with record-heavy carcass weights. 
• JBS Pennsylvania closure and where slaughter cattle get rerouted 
• Memphis value-added plant closure and what “value-added” really means 
• Iran developments, crude oil reaction, and why cattle markets care 
• New World screwworm case count, geography, and why the spread matters 
• USDA response: surveillance, sterile flies, and limited movement restrictions 
• No food safety risk and why that matters for consumer demand 
• May feedlot placements outlook ahead of the Cattle on Feed report 
• Drought signals, heifer decisions, and cattle moved earlier than normal 
• Record-slow marketings and the shrinking window to manage weights 
• Feedlot inventories above last year and what that implies for fed supplies 
• Front-end supply over 180 days, summer heat, and death loss risk 
I think it’s pretty important to tune in because I think we have unique things each week that we bring to the table. 

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Transcript

Welcome And What’s Driving Today

SPEAKER_01 0:18

Welcome back to Ag Bull Media. Jed Sidwell here, live from Joliet, Illinois. We're here with your Fat Tuesday show. Whether you're feeding cattle, run cow calves, or just trying to speculate the cattle market, I think it is the best cattle show out there. And it's for one reason, and it's certainly not my doing, because of Mr. Mike Sands. We'll go ahead and pop him on here. Mike, you're down there in Memphis. Kind of some news coming out your way in the cattle circles this week.

SPEAKER_00 0:48

That's exactly right, Jed. Good to be back with you this morning. Obviously, at the end of last week, the JBS

JBS Closures And Capacity Shifts

SPEAKER_00 0:55

announcement that they were closing their Pennsylvania plant, which had a slaughter capacity of around $2,000 a day, but I don't think they were operating anywhere close to that capacity level. My understanding is, at least in terms of their involvement in the slaughter industry, those cattle will now that typically had gone to that plant will be shifted to the Plainwell, Michigan plant, which that's a pretty sizable long haul from Pennsylvania to basically southwest Michigan. So we'll see how that works out, but at least that's the game plan. The other part of it uh that you alluded to is a value-added plant here in Memphis that I think employed about 200 people and did some value-added private label packaging of several different meats, not just beef alone. My understanding is that that will be closed as well. Yeah.

SPEAKER_01 1:57

We talked about before kind of popping on the screen that value added, we don't always know what that means. They're all value added, they all increase the value of the con of the carcass. That plant you said did some different things with regards to kind of all species and pork, chicken, and did kind of some branded beef programs, maybe.

SPEAKER_00 2:20

That's exactly right. At least that's my understanding. I hadn't worked closely with them, but that's my understanding that they did largely private label business across several different meats. So it uh it wasn't all for JBS. It it was kind of on a contract basis to facilitate other small retail merchandisers or individual packing companies where they could expand their capacity via a contract with with the JBS value-added plant here.

SPEAKER_01 2:59

Right. All right, and it it's very cool to see some of those branded beef programs, and we've maybe started to go away from them. I remember the Nolan Ryan one was kind of popular there for a while. I think it was lean beef, kind of yield grade focused. They're kind of interesting, and there's maybe not quite as many around anymore. The other thing that's been the headline everywhere over this past weekend is the Iran deal that President Trump did.

Iran Headlines And Macro Market Mood

SPEAKER_01 3:29

Mike, you want to talk some more about that?

SPEAKER_00 3:31

Yeah, I think that's been another big part of the developments here over the last few days. Obviously, the plant announcement on Friday was interpreted pretty negatively. The market came under pressure pretty quickly as that uh news circulated. But then over the weekend, the potential or rising odds, if you will, that the Iran conflict will be resolved here in the very near future. Obviously, that's still a work in progress, but the market interpreted it pretty positively in the sense that crude oil prices or the energy complex in total um took a fairly sizable decline. And that obviously is interpreted as positive as far as the U.S. economy is concerned. The equity markets, not the least of which, of course, was uh at least partially influenced by the SpaceX IPO, but nonetheless a huge rebound in terms of the overall equity complex. And I think for the most part, that lent a bit of a positive undertone as far as the cattle and beef markets were concerned here the first couple of days of the week.

SPEAKER_01 4:54

Yeah, that SpaceX thing, it is absolutely crazy. As of this morning, I hadn't checked in it today. I did some research, it was up 43% in two trading accessions alone, making it a top six U.S. company.

SPEAKER_00 5:11

I mean pretty amazing. And of course, with that big capital expenditure or or capex and valuation, they started, as I understand, just saw the headline today, making some acquisitions. So a pretty dramatic uh development over the last few days.

SPEAKER_01 5:33

Yeah, I'm I'm sure with that amount of capital they can make some pretty serious uh uh yeah, buy some pretty big companies if they wanted to. I mean, uh I'm trying to think of which ones they couldn't buy. It's kind of exactly right. Crazy to try and wrap your mind around just how much they have there. Let's get into our slides here. Uh I think we got a really good set of them that kind of play off of each other really nice this week. The New World

New World Screwworm Map Update

SPEAKER_01 6:04

Screwworm is still in the news cycle. We got a map to pop up for you there. Projected smaller feedlot placements in May. The May marketing pace is historically slow, which I think feeds nice. And to the next one, feedlot inventories actually exceed last year's, something we haven't seen very consistently, at least. The large front-end supply and record heavy carcass weights. Let's go on to the map that keeps on growing. But we actually have a blue dot on there this time with regards to screwworm.

SPEAKER_00 6:37

Yeah, a couple of things. Uh, in terms of our overall discussion today, I want to start out uh and and visit a little bit about New World Screwworm, only because it's it's such a prominent and recent development, but maybe some of the frenzied reporting that we saw a week ago beginning to back off just a little bit. I think as we visited last week, there were five confirmed cases at that point. Uh, it's now expanded to 12. I don't believe they've added any additional cases since the weekend. And of course, quite a geographic spread. The first two cases or the first three that were reported. In fact, maybe the first five were in those southern two southern counties, Zavala and LaSalle County, I believe, is the other one. And since then, the overall movement basically has been north. But a couple of things to keep in mind. Those cases have been the ones that they have confirmed, have largely been in domestic animals, not in wildlife. And there hasn't been a huge increase in any of those individual locations. Yes, there have been confirmed multiple cases, but not a flurry like you would expect if in fact there was a fly colony established. So all of that, I think, for the most part, is a bit on the positive side, if we can draw positive in an otherwise negative situation, of course. But for the most part, I think the the government activity in terms of surveillance, maybe we're looking a little bit harder, Jed, than otherwise would be the case. That's probably helped find some additional cases. And at least at this point, the the effort to deploy sterile flies at each one of those infected zones, along with the additional surveillance, and they really haven't picked up any flies in in their traps. So if if we can draw a positive in in an otherwise negative situation, I think that's it. For the most part, it it has not been a flurry of new, very concentrated cases across that uh central and southern Texas area, which I think for the most part offers some hope that this can be brought under control fairly quickly. Now, the other thing that that we need to mention and reiterate is that in despite those cases, we really aren't looking at a quarantine. I think USDA is working pretty hard to be able to facilitate livestock movement. So in a case where an infestation is confirmed, those animals will be treated uh and around that location will be inspected by a veterinarian, and once they're treated and held for, I guess, a minimum of three days, there would really be nothing to prevent movement of those animals to another location. So while there is some restrictions with regard to movement, it's not like an infectious disease, if you will, where they would be quarantined for an extended period of time. That's not the case, and I think they're gonna work pretty hard to facilitate that typical livestock movement, which obviously is very critical as far as the cattle industry in particular is concerned.

SPEAKER_01 10:42

Yeah. I I kind of had two positives that I drew away from it this week, and you had kind of touched on it there, that we hadn't one, we hadn't seen any new outbreaks in wildlife, which I thought was something that we might see and we haven't yet, and I'm sure that we're looking, especially in some of those feral breeds that we have down there in Texas and the high high fence game industry that's so big down there. We haven't seen anything there yet, which I think is a really positive sign. It's obviously it's a lot easier to control a parasite in livestock that we can run through a working facility, can have a veterinarian look at a little bit easier than we can have a wild pig or a deer or something like that. The other cool thing is that we haven't seen very many more in pets, and we haven't seen a human case yet, which I think is great for market sentiment going into the future, because man, if we have someone that gets bit by one of these, it more likely than not will probably hit major news channels, and I'm really glad we haven't seen one of those yet, just in terms of consumer demand and and the general public. Don't disagree, Jed.

SPEAKER_00 11:57

Now, there was a case several months ago. Beck, I think late last year, of a uh uh Maryland man had been identified as the first U.S. case. Of course, that just sent shock waves through the U.S. media. Turns out um he had visited El Salvador for a number of months or andor weeks and contracted the case there. So it really wasn't a U.S. case. It was a Salvadorian case of of an individual that traveled to the U.S. So hopefully we can we can continue to put that behind us. And the other thing that you alluded to, of course, is that there's no um food safety risk associated with this whatsoever.

SPEAKER_01 12:52

Yeah, absolutely. Yeah, I had put that you'd put it on your slide in red and underlined there, no hue human health safety risk. And I decided to even blow it up bigger on the font because I thought it was pretty important. Well, let's roll on to our next one here. May feedlot placements decline?

SPEAKER_00 13:11

Yeah, it's the other major topic today is take a quick look at some observations and

May Feedlot Placements And Drought Effects

SPEAKER_00 13:17

expectations with regard to the Catalon feed report comes out Thursday afternoon of this week. Friday is a holiday in the futures markets in the livestock markets this week. So the report will come out Thursday afternoon. And at least at this point, uh, it sure looks to me like overall feedlot placements in May will be substantially smaller than last year. I would project them around 91% of a year ago. I think the average trade guess is just a little bit bigger than that. And at least at this point, we have seen some pretty wide month-to-month swings in overall feedlot placements. Uh, January started out below a year ago levels. Uh, February was larger, March was smaller, then we are back to bigger numbers in April, and now a pretty substantial decline in May. Big month-to-month swings, but I think these smaller May placements may be the at least partially the result of the big April numbers. I suspect with the drought considerations and drought threat that we were looking at back in March and April, that maybe just possibly there might have been a few heifers that might have been held as herd replacements that ultimately went to the feed yard in April. And in addition to that, since we were looking at a fairly sizable drought threat at that point, which is maybe moderated to some extent since then, I suspect that grazing stocking rates on a number of summer grass programs throughout the plains and west were reduced going into this the summer grazing period. And as a result, I suspect some of those larger April placements were in fact borrowed from what otherwise would have been, would have shown up here in May. And of course, the early development of the hard-gred winter wheat crop in the southern plains probably prompted some early movement of those graze out cattle as well, which once again would suggest that maybe some of our bigger bigger April placements were simply borrowed from what otherwise would have shown up at the feed yard in May.

SPEAKER_01 15:52

Right. And I like that traded kind of term that you used there. And I'm sorry if I interrupted you just real quick, but we talked about this a while ago, I think four shows ago, maybe, that the sheer number of cattle in the grand scheme of things isn't changing a whole lot. We're just pushing them from place to place sooner or later than we normally would. And I like what you brought up there with the heifer deal, that they probably would have gotten sent or kind of earmarked as feeder cattle instead of replacements when we saw those kind of drier months in April and May. I'll let you have the floor again, Mike.

SPEAKER_00 16:30

I sure think that's that's a possibility. It's always hard to confirm those kind of cases outside of some anecdotal changes, of course. And and you do hear a little bit of that, particularly in that central plains area, Wyoming, Colorado, western Nebraska, South Dakota. That area has been particularly dry. It may have improved a little bit here just recently, but for the most part, their overall subsoil moisture conditions are still pretty limited and obviously very dependent on timely rains. So that's not the kind of situation, of course, that you really want to be in going into a grazing season. Now, the other thing from a longer-term perspective with regard to these overall feedlot placements, I think we're going to see a return once again to progressively smaller placement numbers as we move forward. Typically, June and July are two of our smallest placement months of the entire year. In all likelihood, we will increase seasonally going into September, October. But by the same token, I fully expect that those placement numbers are going to be below last year. We talked about moving cattle around and reducing stocking rates a little bit. If that's true, and we ultimately went to fewer cattle on summer grazing programs this summer, then obviously it means that we have fewer cattle coming off. And of course, at the beginning of this year, the overall beef cow herd was down about 500,000 head. Thinking back to last year, in terms of a calf crop and overall yearling type cattle supplies, I think the beef cow herd at the beginning of this year was still below last year, around 100,000 head. So we're probably going to have a little bit smaller calf crop to go along with fewer cattle on summer grass. Ultimately, and that's going to mean fewer feeder cattle supplies as we get into the fall months and contribute to that overall decline in feedlot placements as we move forward.

SPEAKER_01 18:49

Yeah, it is just a slow, slow, slow cycle to try and build back anything here. And I know that's something we talk about a lot, and the thing that we kind of have to portray to people that trade the market or work with us, Mike, that maybe are bond traders or just study grains or things like that. This cattle cycle takes so long to try and build back things that it's such a weird kind of investment to make as a producer, to bet on something that may take three years to come to fruition. It's almost like an orchard or something like that from a business sense that it just takes a long time to try and build back.

SPEAKER_00 19:35

I've sometimes characterized it as trying to turn a battleship on a farm pond. Uh it simply, as you indicated, takes a long time. Uh at a minimum, uh, you're talking about close to three years from the time a decision is made to retain a heifer, to grow that, to to breed that heifer, drop a calf, and and have that calf ultimately ready to go into the feed yard. You're talking something close to 36 months as as a minimum. So uh it's it's a long, slow process, and best I can tell, we really haven't started that process yet in any big way. I do believe that there is some heifer retention going on, but at this juncture, it may be more an effort to utilize those retained heifers to simply replace older cows rather than grow the cow herd. Right.

SPEAKER_01 20:38

Yeah, uh we can have heifer retention, but that doesn't mean we're gonna go up at the same time. And I think that's something we forget. Exactly right. We can keep them all back. But when coal cows are worth what they're worth right now, um, trying to get some of those maybe 12, 13-year-olds, 14-year-old cows kind of kicked out of there probably sooner than we would have 10 years ago. It makes a lot of sense right now, just because they're not a byproduct anymore. They're a liquid asset that you can turn into cash pretty readily. Let's go ahead and move on to this next one right here. It kind of goes off of what we just talked about.

SPEAKER_00 21:16

Yeah, we've been lamenting for some time about these slow marketing rates. Um, you can see this is just a chart of

Slow Marketings And Heavy Carcass Risk

SPEAKER_00 21:25

marketings as a percent of Catalon feed, and you can see that red dotted line through the last half of last year. The marketing rate really slowed down and obviously is continued through the first four or five months of this year. The blue line that you see there denoting the May marketing numbers. Keep in mind that May on feed inventories were 2% larger than last year, and May marketings during the Calendar month look like they were down about 11% compared with last year. Now we had one less day during marketing during May, so that does influence that overall number. But simply looking at May marketings at around 13.5% of the May one on feed number is a record small number. Historically, if you look at that circle up around 16.5% to 17%, that would be the typical marketing rate that we saw a few years ago. Last year we dropped off to around 15 and a half, and this year was record small. The implication of that, of course, is that we have pushed more cattle, as we have in recent months, from May forward into potentially June and July. The implication of that, of course, is that carcass weights probably stay heavy. And with those record heavy carcass weights and bigger front-end supply, maybe some of the marketing flexibility that feed yards have had in the past of putting on an additional 14 days or 30 days on feed or 45 days on feed, that marketing window looks to me like it's it's shrinking, and some of the marketing flexibility is beginning to erode.

SPEAKER_01 23:36

Yeah, the heavier weights that we feed these cattle to, that window shrinks. And also the law of diminishing returns kicks in faster when we start looking at discounts with regards to ones that are too heavy, heart disease, yield grade kind of concerns there. That window gets smaller and smaller the heavier we get. The interesting thing is at some point we can't just make them heavier. We're going to reach a limit to just the physical bounds of their skeletons of how big we can make them. And that'll be interesting going forward. I thought it was as I studied this chart before we went on air, this spike that we see right here in August, where we used to see a spike, I should say. It'll be very interesting when we reach there this year to see if there is a slight pickup. Because, you know, we try and empty out those feed yards going into the fall so that way we can kind of load up into the winter months. What's kind of your thought process there, Mike?

SPEAKER_00 24:35

Well, that's pretty much a seasonal kind of pattern. Uh typically we draw the on-feed numbers down going into the mid-summer months. Typically, feedlot inventories bottom out somewhere around, say, the first of August, give or take a little bit, and then we start to move higher again in terms of inventories. The double stock cattle start to move out of the Flint Hills and the Osage areas, typically in late July, and then we start to get the yearling type cattle off of full season grazing programs begin to show up in August and September. And then, of course, the new calf crop largely gets merchandised as we move into October and November. So there is a seasonal pattern there associated with it. The concern that I have with regard to carcass weights is that normally we see weights decline from you know the fall months into May and June. And we typically put a seasonal low in during May and June, and then increase seasonally going into October, November, and December. Well, we didn't see much of a seasonal decline this year, and now the calendar is tipping toward looking for a seasonal increase in weights going forward. We're starting at a historically high level, and if we see anything close to a seasonal increase in weights, I'm a little bit concerned that uh those heavyweight discounts are are gonna start to have a much bigger impact than what we've seen here over the last couple of years.

SPEAKER_01 26:21

Yeah, we're gonna have some of those hook benders that we talk about sometimes. They get so heavy that they want to bend the hook. Let's roll on to our next one here. Larger feedlot inventories point to larger Fed supplies.

SPEAKER_00 26:36

Yeah, we've um last two months, both first

Bigger On-Feed Numbers And Fed Supply

SPEAKER_00 26:40

of May and first of June, we're looking at on feed numbers that are about 2% above a year ago. If we look at the June inventory specifically, based on my estimates at least, uh it's pretty close to a thousand, I'm sorry, a hundred thousand head bigger than a month ago, and pretty close to two hundred thousand head larger than last year. Uh, those cattle were are going to supply a significant portion of market ready or fed cattle supplies during the last half of the year. So the implication is that we've got the potential of seeing at least matching, if not slightly exceeding, the kind of marketing numbers that we had a year ago. Now, just to keep that June 1 inventory number in perspective, it's only about 220,000 head smaller than where we were in 2022, and that was a record large June 1 inventory at that point. We had something like 11.9 million head, and based on this year's estimate, we're around 11.7 million. So we're only about 200,000 head below a record large number, and a good bit of that is related to this slowdown in marketings that we've been talking about. I I think that leads us directly into our last slide today, Jed. And that's this on feed, it's a calculated number on feed over 180 days. It's not a reported

Front-End Congestion And Summer Death Loss

SPEAKER_00 28:28

number, and it's intended to give maybe a little bit of an indication of what that front-end supply of market-ready cattle really looks like. Obviously, we're much larger than last year, only slightly below where we were a month ago. I think that calculated number for June 1 is around 540,000 head, bigger than a year ago. It's up pretty close to 38 percent. That's the issue that we've we've been kind of dancing around here in terms of our discussion. We have a larger front-end supply of record heavy cattle. And I think that that does potentially create some marketing challenges as we move deeper into late spring and and the early summer months.

SPEAKER_01 29:24

Yeah, it concerns me going into the summer with this many head-on feed, and we keep on hearing things out of the Texas kind of fed cattle region every year that, man, some of these are getting congestive heart failure, they're bloating at a higher rate. These really hotter days that we're starting to see just in our national news or weather cycle, you know, we're experiencing hotter summers across the country. This one's probably gonna be even hotter. If if I'm gonna, if I were a betting man, I would bet it to be that way. If we're gonna have these record large feedlot inventories this time of year with record large weights, we're gonna see some headlines, I think, coming out of the south. What do you think, Mike?

SPEAKER_00 30:12

Well, if you go back to where we were a couple of years ago, on feed, days on feed was typically around 150 days, 160 days, something like that. Uh, we went to 180, and now I think pretty consistently we're talking about days on feed being something in excess of 200. Well, the longer you have that animal on feed, the higher the risk that there is going some going to be some late period death losses. So just just by almost by definition, we're gonna face some of those issues. And obviously, it's bigger. Uh that uh death loss risk is gonna be bigger in the summertime than it is in in the fall or spring. Obviously, you always face winter weather concerns. Uh yes, we get into decent jan and feb, but for the most part, that doesn't automatically go away during the summer months.

SPEAKER_01 31:13

Yeah, absolutely. It yeah, we're in changing times, that's for sure. We're reaching new highs, whether it be the price of cattle, even though we've seen a slight dip. I mean, we're still I'm looking at the August feeder cattle right now, they're $366.80 as we record this. That is an insane price. I know we're not at record yet, but still, just to try and wrap your head around that is pretty crazy. Record amount amount heavyweight cattle, fewer amount of packers by the day. I think staying informed and staying educated right now, just staying on top of things and not falling behind from an education standpoint is really important, Mike. And you know, not to pat ourselves on the back, but I think it's pretty important to tune in because I think we have unique things each week that we bring to the table.

SPEAKER_00 32:09

Well, we'll try and emphasize some of those key elements that we see, at least in the short run, of having an impact on the market. And occasionally we'll we'll take a little bit longer term view as well. But no question, over the last several months, uh it's been a work of a work in progress and lots of moving pieces. Uh at least here uh over the next few weeks, that's probably not going to change a great deal. Yep, absolutely.

SPEAKER_01 32:40

Well, Mike, it was great talking to you. I really am looking forward to doing these into the summer because I'm sure we're going to have a lot of news, which makes it more fun to kind of make these shows when we have interesting things to talk about each week. Do you have any closing comments before we wrap things up here?

SPEAKER_00 33:00

I think for the most part, we need to watch fairly closely the new developments with regard to Iran, whether that can

Futures Vs Cash And Closing Thoughts

SPEAKER_00 33:09

be put in place and firmed up. That does offer some potential moving forward, at least in terms of near-term support. And of course, the futures market, whether we look at either feeder cattle or fed cattle, had been trading at huge discounts to the cash. And now with the cash basically firming a little bit or even eroding a little bit, it's allowed the futures market to rebound pretty substantially.

SPEAKER_01 33:40

That was spot on, Mike. I think that's going to be the topic of discussion with Iran here, even though Trump likes to claim that we're wrapping things up. I don't I don't think we are yet. So yeah, keep informed, stay on top of things there. It was great talking to you, Mike. I'm really looking forward to doing this. I'll go ahead and talk to you next week.

SPEAKER_00 34:01

Thanks, Jed. Great to visit with you today. Looking forward to getting together again next week.