Cattle markets treading water
December 11, 2023
More fed cattle and beef production than previously expected continued to cap cattle prices in November.
ERS increased forecast beef production for next year by 535 million pounds (+2.1%) compared to the previous month at 25.8 billion pounds. That was based on more expected steer and heifer placements — ultimate marketings — for the remainder of this year and the first part of 2024.
Increased feedlot placements the past two months have added about 200,000 head to feedlot inventories, according to Derrell Peel, Extension livestock marketing specialist at Oklahoma State University in his late-November market comments. However, he emphasizes the surge mainly represents feedlots pulling cattle forward.
Ongoing drought in some areas has likely encouraged some cattle entering the market channel sooner than expected, as has the strong prices, according to Peel. As well, he explains feeder cattle imports from Mexico are 49% more year over year, boosted by drought in Mexico and price levels. He says most of those imports likely headed straight to the feedlot.
“Increased placements now will be offset by reduced placements later,” Peel says. “Total placements in the last six months, built on the recent increase and representing the majority of cattle on feed, are at the highest percentage of July 1 feeder supplies since 2011. This means that a larger percentage of available feeder supplies have already been placed in feedlots compared to recent years. Feedlot numbers will inevitably come down in the coming months, especially when heifer retention begins.”
Even so, USDA’s Economic Research Service (ERS) left the forecast weighted annual average five-area direct fed steer price unchanged for this year at $177.30/cwt. and next year at $185. Prices were forecast at $185 in the first quarter next year, $184 in the second and $182 in the third quarter, according to the November World Agricultural Supply and Demand Estimates.
However, ERS reduced the fourth-quarter feeder steer price (750-800 lbs., Oklahoma City) by $14 to $240/cwt., and the annual average price for this year by $3.50 to $221.11 in November’s Livestock, dairy and Poultry Outlook. Prices were forecast $9 less in the first quarter of next year at $240, $1 less in the second quarter at $247 and $2 higher in the third quarter at $260. The annual average price for 2024 was lowered by $1.50 to $252.25.
Expectations for increasing feeder cattle prices in the second half of next year is based in part on fewer cattle available as time unfolds.
Herd expansion remains stalled
Although historically high, cattle prices have yet to yield enough profit to trigger national herd expansion, according to James Mitchell, Extension livestock economist at the University of Arkansas in a recent issue of Cattle Market Notes Weekly.
Mitchell explains relative profitability is one of the key differences between low cattle numbers currently and the similar situation in 2014-15.
“The Livestock Marketing Information Center (LMIC) estimates 2023 cash costs at $1,088 per cow, which implies a breakeven price of $218/cwt. for a 500-pound steer. In 2014, cow costs were $879, resulting in a breakeven price of $176/cwt.,” Mitchell explains. “Enterprise budgets and cattle markets in 2023 are projecting a profit for cow-calf producers. However, relative profitability still needs to improve before seeing herd expansion on a noticeable scale.”
Moreover, Mitchell points to drought as perhaps the most important difference between today and 2014-2015. Back then, 20% of the nation’s cattle inventory were in drought areas at the end of October. This year, he notes 37% were impacted by drought.
“Other differences are due to a cattle industry that has undergone significant structural change since 2014,” Mitchell says.
Based on beef cow slaughter so far this year, the beef cow inventory at the beginning of next year is likely to be at least 2.5% less year over year, Peel says.
Peel points out the beef cow inventory of 28.9 million head at the beginning of this year were 3.6% less than the previous year and the fewest since 1962. More importantly, he says the inventory of beef replacement heifers at the time — 5.16 million head — was 5.8% less year over year. Replacement heifers and heifers expected to calve were the fewest since 2011.
Moreover, Peel notes the inventory of heifers available for breeding (total replacement heifer inventory minus heifers expected to calve) at the beginning of the year was the fewest in 23 years of available data.
“It seems likely that the available supply of bred heifers will remain limited in 2024. The beef cow herd will be smaller in 2024 and holding the inventory stable next year may be the most likely outcome,” Peel says.
Consumer beef demand wobbles
Depending on who’s running the pencil, domestic consumer beef demand continues to be extraordinarily resilient amid historically high retail prices. With that said, the inability of wholesale Choice beef prices to budge much seasonally suggests inflation and higher interest rates could be applying some drag.
“The demand index for beef appears to be resetting closer to pre-pandemic levels but may lose further ground as price increases are expected to continue in the next few years,” say analysts with the Livestock Marketing Information Center in the Livestock Monitor.
LMIC’s demand index for all fresh beef was 115 in the second quarter of 2023, slightly higher than 111 in 2019, but lower than 2020-22. LMIC analysts note a similar trend for the third quarter an index value of 110. That was in line with the same time in 2014 but has declined every year since 2020.
At the same time, reduced domestic beef production and high prices are challenging international consumers of U.S. beef.
September beef exports of 98,757 metric tons (mt), were 15% less year over year and the lowest of 2023. Value declined 12% to $795.5 million. For January through September, beef exports were 13% below last year’s record pace in volume (980,100 mt) and down 18% in value ($7.49 billion).
“U.S. beef continues to face tough sledding in our Asian markets, where weakness in major currencies persist and consumer confidence remains guarded,” says Dan Halstom, USMEF president and CEO. “In the past few weeks, we have seen several Asian trading partners step up efforts to stimulate their economies and ease pressure on consumers. In the meantime, bright spots for U.S. beef continue to emerge in the Western Hemisphere, led by strong demand in Mexico.”
Beef export value per head of fed slaughter was $398.73 in September, just 2% less than a year earlier. The January-September average of $396.03 was 15% less than the same time last year.