Weighing the Market

Wes Ishmael, Southern Livestock Standard

January 21, 2024

Cattle markets entered the new year with a sense of renewed optimism as wholesale beef prices and Cattle futures appeared to etch a bottom, moving beyond the year-end estimates of increased production and lower 2024 prices.

USDA’s Economic Research Service (ERS) lowered forecast feeder steer prices (750-800 pounds, Oklahoma City) for the final quarter of 2023 and this year as feedlot placements and the inventory of cattle on feed continued to be more than expected earlier. Fed steer and heifer slaughter was also less than originally anticipated as packers slowed production to help boost wholesale beef values.

Even so, Derrell Peel, Extension livestock marketing specialist at Oklahoma State University explained in his year-end market comments total feedlot placements for June through November last year were 0.3% less than the same period a year earlier.

“This means that the larger feedlot inventory now is due to a slower feedlot turnover rate and not because of increased total feedlot production,” Peel said. “This is reflected in November feedlot marketings that were down 7.4% year over year. A slower feedlot marketing rate raises concerns that feedlots may not be staying current in marketings.”

In December’s Livestock, Dairy and Poultry Outlook, compared to the previous month, ERS reduced the expected fourth-quarter feeder steer price (750-800 lbs., Oklahoma City) for 2023 by $10 to $230/cwt. and the 2023 annual average price by $2.50 to $218.61. For this year, projected prices were forecast $15 lower in the first quarter at $225, $12 lower in the second at $235 and $10 lower in the third at $250. The 2024 annual average price was reduced $10.50 to $241.75.

ERS also tempered the outlook for cash fed cattle prices (weighted average five-area direct) in December’s World Agricultural Supply and Demand Estimates (WASDE), based on increased expected feedlot placements late last year that will be marketed this year, as well as current prices at the time. Compared to the previous month, ERS reduced the expected fourth quarter price for 2023 by $7 to $178/cwt. The projected annual 2023 price was $1.75 lower at $175.55. Prices this year were sliced by $10 in the first quarter to $175, $9 in the second quarter to $184 and $5 in the third quarter to $177. The forecast annual average price for 2024 was reduced $7 to $178. These prices were unchanged in the January WASDE. 

That was with beef production this year estimated 120 million lbs. more than the previous forecast at 26.1 billion lbs., based on higher expected cattle slaughter in the first half of the year, as well as higher dressed weights. The total would be 857 million lbs. less (-3.2%) than the estimated 2023 total of 27 billion lbs.

Herd rebuilding still stalled

The semiannual USDA Cattle report, scheduled for release Jan. 31, will provide quantification of how much the beef cow herd contracted last year but will be unable to say anything about rebuilding plans this year.

“Beef cow herd liquidation will likely slow, perhaps stop in 2024; though there is little chance of any significant rebuild for a year or more. It will, of course, depend on weather and forage conditions in the coming year,” Peel said. “The heifer retention needed to rebuild the herd will squeeze feeder supplies, feedlot production, cattle slaughter and beef production going forward. However, it is unclear how aggressive that process will be.”

Although production costs are easing, and drought conditions have improved in many regions, Peel points out producers in these regions need time for forage recovery, and in some cases, water recovery. At the same time, drought continues for some.

“With considerable uncertainty remaining about moisture and forage conditions for the coming growing season, many producers are logically taking a very cautious approach to animal stocking,” according to Peel.

Feeder cattle returns challenged

Lower fed cattle prices, in tandem with higher prices paid for cattle currently on feed pour red across cattle feeding returns for the next several months, at least on a cash-to-cash basis, according to Kansas State University’s Historical and Projected Kansas Feedlot Net Returns. Keep in mind the following projections do not include price risk management.

Projected net returns for steers range from -$232.90 to -$253.90 for February through April this year. Estimated feedlot cost of gain for steers during the same period ranges from $111.52/cwt. cwt. to $119.79.

U.S. beef exports continue lower

U.S. beef exports slowed in November, recording the third lowest value of 2023, according to data released by USDA and compiled by the U.S. Meat Export Federation (USMEF). 

Beef exports totaled 99,029 metric tons (mt) in November, down 14% from a year ago and the second lowest of the year, while value fell 7% to $786.2 million. For the first 11 months of the year, beef exports were 13% below the record pace of 2022 at 1.18 million mt, while value declined 17% to $9.11 billion. 

November beef export value equated to $380.54 per head of fed slaughter, down slightly year-over-year. The January-November average fell 13% to $394.07 per head but was still the third highest on record, trailing only 2021 and 2022.

“There are certainly bright spots for U.S. beef, with exports rebounding in Mexico and demand in several Western Hemisphere markets the strongest we’ve seen in years,” says Dan Halstrom, USMEF president and CEO. “But economic conditions in our largest Asian markets and the sharp rebound in Australian production and exports have been persistent obstacles over the past year, making it a sharp contrast with the tremendous 2022 performance for U.S. beef exports. Despite these challenges, we still see sustained demand for chilled U.S. beef, and the U.S. remains the dominant supplier of chilled beef entering Korea, Japan and Taiwan.”

Southern Livestock

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