Cattle and beef supply challenges mean producer and lender caution is warranted, but all is not lost, said Derrell Peel, Oklahoma State University extension livestock marketing specialist in a market comment.
Growth in cattle inventories and beef production do not constitute a wreck, and paralyzing fear that cripples decision making may prevent producers from taking advantage of opportunities that inevitably exist in changing markets, he said.
Perhaps, the fact the industry has not experienced a cyclical expansion since the early 1990’s is part of the problem, Peel said. Some younger producers and traders have never participated in herd expansion, and no one has in more than 20 years.
The beef cow herd probably is still expanding, but there is no way to be sure since the USDA’s National Agricultural Statistics Service has not provided an inventory update since January.
Nevertheless, the beef cow herd is expected to grow another 1.5% to 2.5% in 2016 to near 31 million head, Peel said. This puts the beef cow herd back to the Jan. 1, 2011 level, before drought liquidation dropped it by an unplanned 2 million head.
Although the expansion since 2014 is properly characterized as cyclical, it can also be thought of as drought recovery, he said. There is little doubt the herd was poised to expand in 2011 in the absence of drought, so it hardly seems likely that expansion to get back to that level can be thought of as drastically overshooting the mark.
True, the 28-pound 2013-2015 jump in steer carcass weights means less expansion now will be required to produce the needed amount of beef, so the need for additional herd expansion in 2017 and 2018 is questionable, but the expansion thus far is not too much, Peel said.
Beef production is expected to increase 4.5% to 5% in 2016 to about 24.8 billion pounds, which still is 4.7% below the 2009-2013 average. This follows a 7.9% decrease in beef production from 2013 through 2015 to a 22-year low.
CATTLE, BEEF SHOULD STABILIZE
There is reason for cattle and beef markets to stabilize, he said. Current carcass weights are 15 pounds below a year ago and are expected to remain there for the balance of the year, he said.
Slaughter for the rest of 2016 will still be higher than last year but will moderate, and combined with lower carcass weights, are expected to hold fourth-quarter beef production to less than 3% above a year ago, compared with the 7.4% third-quarter increase.
Beef imports are down 12.1% through July and beef exports are up 3.1% through July, moderating supply increases. This is expected to hold a 2016 domestic consumption increase to less than 2%.
Fewer cattle are being imported from Mexico and Canada with Mexican feeder imports down roughly 25%. This helps to moderate the increase in feeder supplies going into 2017.
Market shock absorbers are in place and working and should help markets move forward with much less drama than the past few months, he said.
CASH CATTLE MARKETS TRADE LIGHTLY
Cash cattle markets Thursday traded at mostly $102 per cwt on a live basis and $158 to $160 dressed, compared with $103 to mostly $104 last week.
The USDA’s choice cutout Thursday was $0.62 per cwt lower at $183.48, while select was off $1.20 at $175.06. The choice/select spread widened to $8.42 from $7.84 with 114 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Tuesday was $130.59 per cwt, down $0.35. This compares with the Oct settlement Thursday of $127.82, up $0.37.