Although higher cattle prices were expected by many to increase as supplies contract, the pace through mid-July continued hotter than many originally anticipated.

Feeder steer prices (600-700 lbs.) at the start of July were $61-$71/cwt. higher year over year on a regional basis — up 30-40% — according to USDA’s National Weekly Feeder and Stocker Cattle Summary.

Cash fed steer prices set a nominal record high price the week ending April 10 when the five-area direct weighted average price reached $173.10/cwt. on a live basis. It climbed as high as $188.75 the week ending June 11 and headed into July at $181.33.

“The ongoing story of tight cattle supplies combined with improving pasture conditions and lower year-over-year feed costs continues to push feeder cattle prices higher,” explain analysts with USDA’s Economic Research Service (ERS) in June’s Livestock, Dairy and Poultry Outlook. “Demand for limited supplies of feeder cattle remains strong. Feedlots are looking to fill their feedyards to take advantage of lower feed costs and the prospects for higher fed cattle prices, while recent rains have improved the drought situation in a few areas, likely creating some demand for cattle to go on grass.”

ERS forecast feeder steer prices (750-800 lbs., Oklahoma City) at $209/cwt. in the second quarter, $224 in the third quarter and $226 in the fourth quarter for an annual average of $227. ERS pegged the annual average for next year at $226.50.

In the July World Agricultural Supply and Demand Estimates (WASDE), ERS projected the expected third-quarter fed steer price (five-area direct) $5 higher than the previous month to $178/cwt. and the fourth-quarter price $9 higher to $183. The forecast annual price increased $3.60 to $175.30. Next year’s annual price was projected $4 higher at $184.

Price projections increased despite a bump in expected beef production due to higher expected steer, heifer, cow, and bull slaughter. Projected beef production of 27.16 billion pounds would be 1.13 billion pounds less (-4%) than last year. Next year’s beef production was forecast to be a staggering 2.46 billion pounds less (-9.1%) that this year’s projected total at 24.7 billion pounds.

Herd contraction continues

Prices should get stouter yet, given that it appears national beef cow herd liquidation continues, based on elevated beef cow slaughter and the percentage of heifers in feedlots.

“The first step to stabilizing the beef cow herd is the reduction of beef cow slaughter and a lower rate of cow culling,” explained Derrell Peel, Extension livestock marketing specialist at Oklahoma State Univdersity, in his mid-June market comments. “Following record beef herd culling in 2022, beef cow slaughter is down 11.5% so far in 2023, a sign that herd liquidation is slowing. However, I suspect that, until recently, the decrease in total beef cow slaughter was masking some continued liquidation in the drought areas of the plains … Beef cow slaughter is expected to decrease more sharply in the second half of the year.” 

Definitive indication of herd expansion will come with increased heifer retention, according to Peel.

“Right now, no such signs exist, though I suspect that some heifer retention is beginning,” Peel said. “In fact, heifer slaughter thus far in 2023 is fractionally higher than last year’s elevated level. Of course, the reduced heifer feedlot placement that follows increased heifer retention will show up as lower heifer slaughter only after several months. The July Cattle inventory report may be the first sign that shows an increased inventory of beef replacement heifers. Heifer slaughter is expected to start declining in the second half of the year.”

In the meantime, Peel noted the low inventory (Jan. 1) of replacement heifers — bred heifers calving this year and heifer calves to breed for calves in 2024.

“The bred heifer inventory is the lowest since 2011 and the inventory of replacement heifer calves is the lowest in the 23 years of data available,” according to Peel. “The number of replacement heifers is not enough to prevent more herd liquidation this year and likely not enough to do more than stabilize the beef cow herd in 2024. The big push for heifer retention will likely begin with weaning heifers this fall. These heifers will be bred in 2024, calve in 2025 and begin to increase beef production in 2026. It doesn’t seem possible to speed up the timeline.”

Drought holds expansion cards

Drought continues to improve in some parts of the country while persisting and expanding in others.

El Niño’s arrival in June suggests eventual above-normal moisture in the Southeast, along the Gulf Coast and in the southern High Plains. If it’s strong enough, California and the Southwest may receive similar benefit. Typically, the opposite is true in the northern part of the nation.

Drought in the Midwest cast doubts about corn yield, although USDA surprised markets with an estimated 94.1 million corn acres in the June Acreage report. That was 5.52 million acres more (+6%) than last year, and 2.1 million acres more than the March Prospective Plantings report. Corn acres would be the third highest planted acreage in the United States since 1944. Projected area harvested for grain of 86.3 million acres would be 9% more than last year.

USDA estimated the season-average farm price for corn received by producers at $4.80 per bushel in the July WASDE. 

“Once you save start saving heifers for a herd expansion, you got to save heifers for at least three years before you slow down the rate of heifer retention enough, and the numbers have grown enough to allow more heifers to go back into the feedlot,” Peel explained at the cattlemen’s Conference. “So, as we tighten this thing up over the next year to 15 months, it’s going to be a while from that point before things can change.”