Currently lofty cow/calf producer profits are expected to experience some weight this year as rising production and competition produce more meat, which will back up product through the production chain.
And since cow/calf producers are first in the production line, they have little control over the price they are paid for their calves. Thus, with increased production and competition, their returns may be about to turn lower, analysts say.
In response to higher prices and abundant pasture, the US cow herd began growing last year, which is expected to result in more beef production next year and the beginning of the trend toward lower cattle prices.
In addition, more pork and chicken will be on the market, adding pressure to the entire US meat industry.
“Cyclical erosion in cattle prices is expected to become more and more apparent in the second half of this year,” said the Livestock Marketing Information Center. “At least through 2016, prices will remain high by historical standards,” but the turn lower is in sight.
On a quarterly basis, prices for fed cattle, 700- to 800-pound yearling steers and 500- to 600-pound calf prices all hit official cyclical, record-high peaks in the fourth quarter of 2014. Preliminary data show these prices went on to set new highs in the first half of this year, but the momentum appears to be leaking out of the markets.
Even with more heifers held for breeding, the estimated supply of feeder cattle is rising slowly, analysts say, and the way feeder cattle prices are hitting resistance backs up such estimates.
The CME Feeder Cattle Index made a nearby peak in January, and while prices have made a run at January levels since then, they have not been able to penetrate. Many think more yearlings and calves will be coming to market as pastures fade seasonally, and the rising calf crops of the last two years may prevent a new feeder cattle top for years to come.
Based on the Jan. 1 USDA cattle inventory report, which is a better gauge of the herd size than the July 1 report, the supply of feeder cattle outside feedlots was up 1.8% from a year earlier. Despite this, placements of cattle into feedlots so far this year has been well below 2014 as abundant pasture has allowed cattle producers to keep cattle on grass longer than in the last few, drought-stricken years.
In addition to a larger calf crop, calf slaughter has continued to decline, leaving more dairy calves available to feedlots to increase total beef production.
So, as of July 1, the number of available calves and yearlings outside feedlots was more than 600,000 head, or 1.8%, above a year earlier and the highest since 2011, the LMIC said.
CASH CATTLE MARKET QUIET
Locked in a battle for supremacy, cattle sellers and packer buyers have kept cash cattle markets quiet this week. Trading is expected today at near-steady prices.
Packer bids have been posted at $143 per cwt on a live basis against asking prices nearer $148. Bids remain scarce in Nebraska’s dressed market at $228, but asking prices held around $236.
Prices last week were lower, with live-basis sales at mostly $145 to $148 per cwt, mostly $3 lower. On a dressed basis, cattle traded at $230 to $232, down $4.
The USDA’s beef cutout values Thursday were higher, with the choice cutout at $233.34 per cwt, up $0.72 and select at $229.32, up $0.25. Volume was moderate with 95 loads of fabricated cuts being sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Wednesday was $215.78 per cwt, down $0.89, compared with the Aug settlement Thursday of $211.22, down $0.25.