Weighing The Market

Wes Ishamel, Southern Livestock Standard

February 17, 2024

Cattle market poised to strengthen

Negotiated cash fed cattle prices and cattle futures reached their highest levels in three months the second week of February, helped along by severe winter weather in January disrupting packer production and reducing carcass weights, as well as declining cattle numbers.

USDA increased the forecast annual five-area direct average fed steer price for this year by $2 to $180/cwt., in the February World Agricultural Supply and Demand Estimates. Prices were projected at $176 in the first quarter, $180 in the second and third quarters and $184 in the fourth quarter. Price estimates bloomed with expected strength in first-half demand for fed cattle in the face of tightening feedlot numbers, according to USDA analysts.

At the same time, estimated beef production for this year was estimated slightly higher, up 75 million pounds from the previous report to 26.2. billion pounds. The total would be 778 million pounds less than last year (-2.9%).

“Slaughter is lowered for the first half, reflecting a slower pace of cattle slaughter,” say USDA analysts. “For the second half, steer and heifer slaughter is raised as USDA’s January Cattle report implied a smaller decline in cattle outside feedlots than previously expected, and to the extent these cattle are placed on feed in the first half, they will likely be marketed and slaughtered in the second half.”

Cattle numbers historically low

The U.S. beef cow herd began this year 2.5% less than a year earlier, according to the USDA Cattle inventory report. The 28.2 million beef cows were 716,300 fewer. 

From a broader view, Derrell Peel, Extension livestock marketing specialist at Oklahoma State University explained in his early-February market comments the beef cow inventory was 3.47 million head less (-10.9%) than the cyclical peak in 2019 and was the smallest beef cow herd since 1961.

As well, Peel pointed out the top 10 beef cow states, represent 57.3% of total beef cows and accounted for 79.4% of the year over year decrease in total beef cow numbers. Those states accounted for 67.7% of the decrease from 2019 to 2024.

Year over year, beef cows that calved were 2-6% less in every state with 1 million head or more. Specifically, numbers were 4.3% less in Texas, 3.4% less in Oklahoma, 5.9% less in Missouri, 3.9% less in Nebraska, 2% less in South Dakota, 3.9% less in Kansas and 1.6% less in Montana.

Beef replacement heifers of 4.8 million were 71,300 less (-1.4%). Further, Peel explains, “The 2023 beef replacement heifer inventory was revised down by 4.5% from the initial value reported one year ago.”

Total cattle and calves in the United States of 87.2 million cows were 1.7 million head fewer (-1.9%) than the prior year. That was the least since 1951, according to Peel. 

Estimated supply of feeder cattle outside feedlots Jan. 1 of 24.2 million head was 4.2% less, representing the fewest in the 53 years, according to Peel.

Higher prices ahead

“Though drought conditions did improve in many regions, over a third of the cow herd was affected by drought in 2023, causing limited heifer retention and more liquidation in some regions. This will limit growth to the cow herd near-term,” explained Kevin Good, CattleFax vice president of market analysis, at the recent annual CattleFax Outlook Seminar. 

Despite record prices, CattleFax analysts say beef cow herd expansion will likely be delayed again this year with lingering drought (see below), high input costs, limited labor availability, high interest rates, and market uncertainty as headwinds. Overall, they expect cyclical herd expansion to be slower and more prolonged this time around with expected lows in fed slaughter by 2026.

Cow and bull slaughter is forecast to be 6.5 million head in 2024, down around 800,000 head, from 2023. CattleFax predicts feeder cattle and calf supplies outside of feedlots will be 1 million head fewer than 2023 at 24.1 million head.

Commercial fed cattle slaughter in 2024 is forecast to decline by 750,000 to 24.8 million head. “Though inventories may remain somewhat elevated for a few months, they are expected to decline significantly through the second half of the year,” according to Good.

CattleFax projects beef production to be 1 billion pounds less than last year. It was about 1.3 billion pounds less year over year in 2023.

Prices for all classes of cattle are forecast to be higher this year, according to Mike Murphy, CattleFax chief operating officer. 

CattleFax pegs this year’s annual average price for fed steers $9 higher than last year at $184/cwt. As for other classes:

•Feeder steers (800 lbs.) — $240/cwt. 

•Steer calves (550 lbs.) — $290/cwt. 

•Utility cows — $115/cwt.

 •Bred cows — $2,600/head 

Peak cattle prices are likely to come in 2025-26, according to Randy Blach, CattleFax chief executive officer.

In the meantime, higher cattle prices and reduced feeding costs will continue to improve margins for cow-calf producers for the next several years, as reduced cattle numbers and beef production return more leverage to the sector, according to CattleFax. 

La Niña lurks

After several months watching El Niño’s influence on the global weather pattern, CattleFax meteorologist Matt Makens said the El Niño event that placed moisture on the South and Southeast is fading away and La Niña is showing signs of making a rapid return.

“During the next several weeks, we will continue to see strong and wet storm systems move across the central and southern states. Increased odds for snow and cold as far south as Texas will mean possible impacts on calving and wheat,” Makens explained during the CattleFax Outlook Seminar. “Take this moisture now and make the most of it; look for a good start to this grazing season overall but be mindful that drought conditions will increase for the Southern Plains during summer and fall as we see our pattern change quickly.” 

As La Niña’s influence grows, increased heat and drought-related issues are expected for the Central and Southern Plains. The moisture pattern will favor the northern tier of states and the Ohio to Tennessee Valley.

Southern Livestock

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