Cattle futures softened in recent weeks encumbered by seasonal weakness and negative outside markets tied to worries about higher interest rates and the potential impact on consumer beef demand.

      For instance, Feeder Cattle futures lost an average of $10/cwt. across all contracts over the course of two weeks ending Oct. 6. Yet, snug and dwindling cattle numbers maintain a historically high floor beneath cash prices.

      USDA’s Economic Research Service (ERS) increased the expected fourth-quarter feeder steer price (750-800 lbs., Oklahoma City) by $4 to $259/cwt., in the September Livestock, Dairy and Poultry Outlook. Prices were raised by $1 in the first and second quarter of next year to $249 and $248, respectively. The annual average price was projected at $225.99 this year and $253.75 next year.

      On the other side of the trade, ERS projected the fourth quarter fed steer price (weighted average Five-area) at $190/cwt., in the September World Agricultural Supply and Demand Estimates. ERS pegged this year’s average price at $178.50. The annual average price next year was forecast at $186 with prices in the first and second quarters $188 and $186, respectively.

      Beef production was estimated to be 26.9 billion pounds this year, which would be 1.4 billion pounds less (-4.8%) than last year. Beef production for next year was forecasted to be 1.8 billion pounds less (-6.6%) than this year at 25.2 billion pounds.

Feedlot inventories and placement patterns illustrate declining cattle numbers

      Cattle on feed Sept 1 of 11.1 million head were 248,000 head fewer (-2.2%), according to the monthly USDA Cattle on Feed report. August placements of 2.0 million head were 107,000 head fewer (-5.1%) than a year earlier. Both represent feedlots with 1,000 head or more capacity.

      Placements have decreased year over year for 10 of the last 12 months, with total placements down 897,000 head in the last year, says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in late-September market comments. 

      “A 12-month moving average of placements shows that the peak annual average monthly placements occurred in December 2019, consistent with the cyclical peak in the calf crop in 2018,” Peel says. “However, pandemic delays from 2020 into 2021and drought-enhanced placements in 2021 and 2022 have kept feedlot placements high until the last few months.”  

      Peel explains the current 12-month moving average of placements for August dropped to the lowest level since May of 2017. He says average placements are expected to continue declining for the foreseeable future.

      As for the on-feed inventory, the 12-month moving average peaked in September 2022 at 11.836 million head, according to Peel.  

      “The September 2023 12-month moving average is 11.507 million head, down 2.8 % from the peak,” Peel says.  “Following the drought a decade ago, the 12-month moving average dropped below 11 million head in April 2013 and remained below that level for 58 months through January 2018. This was the period of rapid herd expansion in the last cattle cycle and a similar situation is likely going forward, beginning in 2024.” 

Iffy expansion pace

      Even if you take drought recovery out of the equation, there’s no clear indication about how aggressive producers will retain heifers and begin herd rebuilding this fall.

      “On one hand, we have the higher feeder cattle prices, current and deferred, which incentivizes the desire to retain cows and heifers to get profits in the future,” explains Elliott Dennis, Extension livestock economist at the University of Nebraska-Lincoln. “However, there are also atypically seasonal incentives to sell both cull cows and heifers at higher current market values than previously experienced and forgo profits next year.”

      Dennis says declining cow numbers and strong ground beef demand are keeping cutter cow and slaughter cow prices significantly higher than both the five-year average and 2022 with general price support for cutter cows at $90/cwt.

      “Higher and stronger ground beef prices and boxed beef cutter cow cutout will only keep these prices high or increase them into the fall. These seasonally higher prices should continue to impact the beef cow slaughter rate,” Dennis explains in a recent issue of In the Cattle Markets from the Livestock Marketing Information Center.

      As it is, even though weekly beef cow slaughter rates are declining, beef cow slaughter continues above the five-year average, according to Dennis. He adds heifers, as a percentage of total cattle on feed remains at the highest level in 20 years at about 40%.

      Ultimately, Dennis says the tradeoff this fall will be between cashing in on cows and heifers at high prices or chasing after higher feeder cattle prices in 2024.

      “Producers need to be extremely diligent about calculating how much they can pay for replacement heifers, as well as how much value that heifer has when she is retained rather than sold under current market conditions,” Dennis says. “Understanding what needs to go right and what can go wrong for heifers and bred cows to pay for themselves will be extremely important this fall.”

U.S. beef exports lower

      U.S. beef exports continue lower year over but show signs of resilience, based on data released by USDA and compiled by the U.S. Meat Export Federation (USMEF).

      August beef exports totaled 109,000 metric tons (mt), down 19% from last year, when export volume was the second highest on record. However, export volume was 6% more than the previous month. Export value of $883.9 million was 15% less year over year but 9% more than July. 

      “Beef exports certainly face significant headwinds, especially in our large Asian markets where foodservice has been slow to recover and consumer confidence is low due to the impact of rising prices and the strong U.S. dollar,” says Dan Halstrom, USMEF president and CEO. “But exports to South Korea and Japan did bounce back to some degree after a difficult July. Mexico continues to be a major bright spot for U.S. beef, and exports to other Western Hemisphere partners in Central and South America and the Dominican Republic also gained momentum in August.”

      For January through August, beef exports trailed last year’s record pace by 12% in volume (881,343 mt) and 19% in value ($6.69 billion).

      August beef export value equated to $395.81 per head of fed slaughter, down 10% from the previous year. The January-August average of $395.71 was 16% less than the same period last year.