Weighing the Market
September 18, 2023
Seasonal price weakness likely muted
Cattle price increases slowed or stalled last month, pressured by extreme heat limiting cattle movement and packers reducing production in an effort to boost wholesale beef values. Heading into fall, prices typically come under seasonal pressure, although dwindling cattle numbers will likely lessen the impact.
“Cattle prices are trending higher in response to ever tightening cattle and beef supply fundamentals,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University is his Sept. 4 marketing comments. “The beef cow herd on Jan. 1, 2023, was the lowest since 1962 and is still getting smaller. The projected 2023 U.S. calf crop is 2.5 million head smaller than the recent peak in 2018 and leads to an estimated July 1 feeder cattle supply down 3.6% year over year and the smallest since 2017. Feedlot inventories have been smaller year over year since September 2022.”
The last week of August, regional calf and feeder cattle prices were 40% higher year over year with regional steer prices (600-700 pounds) ranging from $68.29/cwt. to $83.30 more year over year, according to USDA’s National Weekly Feeder & Stocker Cattle Summary.
“Cattle prices have advanced quickly; in some ways faster than expected. The highest cattle prices will occur when herd rebuilding begins in earnest,” Peel explains. “The retention of heifers and reduced cow culling will squeeze feeder cattle supplies, cattle slaughter, and beef production to sharply lower levels. This process has not yet started and is expected to proceed rather slowly when it does begin. Herd rebuilding is expected to take three to four years or more… Cattle prices are expected to average higher through at least 2024 and 2025.”
USDA’s Economic Research Service (ERS) raised the expected feeder steer price for the remainder of this year and next, in the August Livestock, Dairy and Poultry Outlook (LDPO). The price is for 750-800-pound steers selling at Oklahoma City.
Based on recent price strength, ERS increased the forecast price by $9 to $250/cwt. in the third quarter and $255 in the fourth quarter. The 2023 annual average price increased $4.50 to $224.99. Prices for next year were forecast $3 higher in the first and second quarter at $248 and $247, respectively. The 2024 annual average price was also estimated $3 higher at $253.25.
ERS also increased the projected five-area direct fed steer price in the August World Agricultural Supply and Demand Estimates. ERS increased expected prices in the third quarter by $6 compared to the previous month to $184/cwt., and the fourth-quarter price by $7 to $190 for an annual average of $178.50, which was $3.20 more than the previous estimate. Projected fed steer prices increased $2 for next year at $188 in the first quarter, $186 in the second quarter and $186 for the 2024 average.
Estimated year-to-date total cattle slaughter for the week ending Sept. 8 of 22.4. million head was 986,000 head fewer (-4.2%) than the same period a year earlier, according to USDA data. Estimated year-to-date beef production of 18.3 billion pounds was 964.2 million pounds less (-5.0%).
Replacement female prices ratchet up
Based on August auction data, prices for replacement females are significantly higher year over year, according to the Livestock Marketing Information Center (LMIC) in Aug. 25 Livestock Monitor.
LMIC analysts explain prices for Medium and Large #1-#2 bred cows in the first trimester increased significantly at many August auctions reported by USDA’s Agricultural Marketing Service.
For instance, prices were 40-60% higher year over year in the Southeast, according to LMIC. Prices for the same class of replacements were 53% higher at Joplin Regional Stockyards in Missouri and 57% higher at Oklahoma National Stockyards.
For some historic perspective, LMIC analysts explain, “Auction data moved exponentially higher back in 2014 and 2015, however, that expansion effort was propelled by record high profits. While producers are already seeing better calf prices in some areas of the country than they did back then, costs have increased substantially, including interest rates, and profits are unlikely to be as good.” While these factors are not expected to limit expansion, LMIC analysts say they may be headwinds for some producers.
Beef exports continue lower
U.S. beef exports softened in July, posting the lowest volume since January, according to data released by USDA and compiled by the U.S. Meat Export Federation (USMEF). However, export value per head of fed slaughter still exceeded $400.
July beef exports totaled 103,167 metric tons, down 18% from a year ago and the lowest in six months. Export value was $810.4 million, down 19% and the lowest since February.
For January through July, beef exports trailed last year’s record pace by 11% in volume (772,343 mt) and 19% in value ($5.81 billion).
“It’s definitely a challenging environment on the beef side, due in part to limited supplies but also persistent headwinds in our key Asian markets,” according to Dan Halstrom, USMEF president and CEO. “Though it’s taking longer than anticipated, we still expect a broader foodservice rebound in Asia. And some bright spots for U.S. beef include sustained demand in Taiwan, especially for alternative beef cuts, and the continued momentum in Mexico. It’s also encouraging to see per-head export value maintaining a high level. This is an important metric for gauging the returns delivered by the international markets, even when our production is trending lower.”
On the other side of the trade equation, beef imports to the U.S. are higher year over year, as expected, with declining U.S. production.
Imports in the first half of 2023 totaled nearly 1.9 billion pounds, about 1% more than the same time last year, according to in the LDPO. Cumulative imports from Australia increased 26% from the same period last year. ERS analysts add that Australia’s exports to the world were up 20% year over year as higher production provided more exportable supplies.
Snubbed to a different post, U.S. imports during the first half of this year were 13.3% of total domestic beef disappearance (production + net trade + net stocks), which was slightly higher than the same time last year. Imports for the full year are expected to be 12.8% of total disappearance, compared to an average of 11.7% for 2018-22.
“That percentage is expected to increase to about 13.8% in 2024 as domestic production declines and imports increase,” say ERS analysts.