Still pulling cattle forward
November 13, 2023
Cattle markets began November, recovering from the October Cattle on Feed report. It surprised many with 6% more September placements than the previous year and significantly more than expected. Cattle futures took it on the chin, as did some cash prices, albeit at historically high levels.
“It likely reflects producers selling now to take advantage of strong markets but also some producers being forced to sell feeder cattle a little earlier than expected due to expanding drought in many areas,” explained Josh Maples, Extension livestock economist at Mississippi State University, in Cattle Market Notes Weekly. “Looking ahead at price expectations, it is worth noting that the current strong market prices have not really reflected herd rebuilding efforts yet. The rebuilding phase will include holding back more heifers which will mean fewer heifers sold as feeder cattle. Combined with smaller calf crops as a whole, this will be the point when feeder cattle supplies get really tight and that prices have the strongest supply-side support.”
Even before the bearish report, USDA’s Economic Research Service (ERS) increased expected third-quarter feedlot placements in the October Livestock, Dairy and Poultry Outlook.
“Most of these placements are expected to come from those previously anticipated in the fourth quarter,” ERS analysts said. “Further, anticipated placements in first-half 2024 are raised. This assumption of feedlot demand and availability of feeder calves results in a net increase of anticipated fed cattle marketings next year.”
Compared to projections the previous month, ERS lowered the expected feeder steer price (750-800 lbs., Oklahoma City) by $5 in the fourth quarter to $254/cwt. This year’s forecast annual price of $253.75 was unchanged. Expected prices in the first and second quarters of next year were also unchanged at $249 and $248, respectively.
ERS also lowered the projected fourth-quarter five-area direct fed steer price by $5 to $190/cwt., and the annual average price by $1.19 to $177.30. Price expectations were lowered $1 in the first and second quarter of next year to $187 and $185, respectively.
Fourth-quarter beef production was forecast 60 million pounds more with estimated higher cow and bull slaughter more than offsetting a slight decline in expected average carcass weights. Total 2023 beef production was forecast 35 million pounds more than the previous month at 26.98 billion pounds.
“Projections for next year reflect adjustments in feeder calf placements in late 2023 and early 2024, which imply higher anticipated fed cattle marketings in 2024,” ERS analysts explained. “Higher cow slaughter is expected in first-quarter 2024, offsetting a reduction in the second half of next year. Bull slaughter was also adjusted higher in the first three quarters.”
Beef cow liquidation continues
Of course, bullish supply fundamentals remain intact.
Referring to the Cattle on Feed report, Maples pointed out the percentage of heifers on feed was the highest in 20 years at 40%.
“There are two sides of this,” Maples explained. “Heifers are helping to boost inventories now which could be viewed somewhat negatively for prices in the short term, but also fewer heifers retained means a smaller calf crop next year which can be viewed as supporting high price levels in the longer term. To me, this report shut down any ideas that herd expansion is happening or will happen in 2023 and that discussion will shift toward whether expansion occurs in 2024.”
Along with the continued high percentage of heifers on feed, Derrell Peel, Extension livestock marketing specialist at Oklahoma State University noted the continued pace of beef cow slaughter.
“Monthly slaughter data through September shows that total female (cow + heifer) slaughter has averaged 51.8% of total cattle slaughter for the past 12 months,” Peel explained, in his Oct. 23 weekly market comments. “This is the highest 12-month average female slaughter percentage since August 1986 … Year-to-date beef cow slaughter is down 12.9% from last year but will still result in a net culling rate over 11.5%, indicating continued liquidation. The beef cow herd will be smaller in January 2024, and it increasingly looks like the best that could happen in 2024 is to stabilize the herd with significant growth delayed until 2025 or beyond.”
In sum, Peel explained smaller beef cow inventories are ahead, along with more dramatic reductions in cattle slaughter and beef production – and higher cattle prices – when herd rebuilding takes flight.
Through the first week of November, estimated total cattle slaughter was 4,000 head fewer than the previous week at 632,000 head, which was 32,000 head fewer year over year. Estimated total year-to-date cattle slaughter of 27.4 million was 1.3 million head fewer (-4.6%). Estimated year-to-date beef production of 22.5 billion pounds was 1.2 billion pounds less (-5.2%) than the same time last year.
U.S. beef exports continue lower
Although lower year over year, U.S. beef exports continue to provide significant price support.
August beef export value equated to $395.81 per head of fed slaughter, according to data released by USDA and compiled by the U.S. Meat Export Federation (USMEF). The January-August average of $395.71
U.S. beef exports in August 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.