Fed by a variety of factors, cull cow slaughter is high, but where it goes from here is a cloudy picture, said Elliott Dennis, Extension livestock economist at the Univeristy of Nebraska, in a letter to Extension agents from the Livestock Marketing Information Center called In The Cattle Markets.
Inflation, low corn/soybean stock-to-use ratios and high crude oil prices have raised the cost of calf production, Dennis said. Add in a worsening drought, several years of low feeder cattle prices and high cull cow prices not seen since 2014/15, and there have been plenty of incentives to sell cows.
PRODUCTION OUTLOOK
There is an inverse relationship between cull cow prices and cow slaughter, he said. On average, cull cow prices of $98 per cwt in 2021 dollars decrease about $1.18 per cwt for every additional 1,000 head slaughtered.
The cow slaughter-to-price ratio in 2022 has been similar to 1996 and 2010-2011, which correspond to periods of drought, most notable, the 2010 to 2013 drought, where cull cow prices began to rise as fewer cull cows came to market, Dennis said. This dynamic peaked in 2014, normalizing to pre-drought prices in 2017.
If the current cycle is just starting (i.e. 2022 is equivalent to 2010) then we should see average culling continue to rise into 2023 to about 24,000 head weekly at $92 per cwt, he said. Peak prices would be in 2026 at $140 per cwt.
What is more probable is that the industry is in either it’s last or second to last year (2022 is equivalent to either 2012 or 2013) given forecasts of La Nina softening and heading toward a more neutral pattern at the end of this year.
That would put the industry at somewhere in the $100-per-cwt range in 2021 dollars, in 2023 or 2024 with an average weekly slaughter of 16,000 to 18,000 head.
Nominally, the cow cutout reached highs not seen since 2014 and 2015 in late 2021 and early 2022, Dennis said.
However, a key difference between those highs and 2014-2015 has been inflation in retail and food service, especially for beef products, he said. Adjusting cutter cow cutout prices to 2021 levels indicates 2014-2015 prices would be equivalent to a cutter cow cutout of $288 per cwt – a far cry from the $254 per cwt at its peak.
The cow cutout primarily derives its value from lean beef products with 90% lean historically making up about 87% of the total, he said. If softening consumer demand continues, it should put pressure on cull cow prices causing them to return to a more seasonal price pattern into the Fall of 2022.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $137.13 to $144.71 per cwt, compared with last week’s range of $137.00 to $145.17. FOB dressed steers, and heifers went for $213.91 to $219.67 per cwt, versus $216.89 to $220.37.
The USDA choice cutout Thursday was down $0.22 per cwt at $267.77, while select was down $1.00 at $240.81. The choice/select spread widened to $26.96 from $26.18 with 79 loads of fabricated product and 20 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were steady at $2.60 to $2.80 a bushel over the Sep futures and for southwest Kansas were unchanged at $0.10 over Sep, which settled at $6.15, up $0.14 3/4.
The CME Feeder Cattle Index for the seven days ended Wednesday was $172.55 per cwt up $1.91. This compares with Thursday’s Aug contract settlement of $177.42, down $1.67.