Wholesale beef prices continue to trend lower, generally following last year’s second-half direction as supplies increase.
The USDA’s choice boxed beef cutout is about to cross below the 2010-2014 average and could remain there for years as the cattle cycle continues to crank out more fed cattle.
SEASONAL GAINS VS SUPPLY BOOST
The 2010-2014 average price for choice boxed beef moves higher through the year, reaching its peak the last week of November as wholesale demand for holiday roasts and steaks fades.
Currently, 2016 year-to-date beef production is up 4.4% to 14.440 billion pounds from 13.836 billion a year ago.
As a result, product prices are being pressured.
It’s true that the recent opening of export markets to US beef has the potential to boost beef exports and overall beef demand, such openings do not guarantee the demand will be there. The USDA’s Economic Research Service says 9.6% of US beef production was exported last year, down one percentage point from 2014’s 10.6%.
So for US cattle producers, it’s a good thing US domestic beef consumption appears to be rising. USDA/ERS data point to total beef consumption of 24.8 billion pounds last year, up from 24.7 billion in 2014. For this year, the USDA is estimating total beef consumption of 25.5 billion pounds, and for next year, ERS economists estimate consumption at 25.8 billion.
However, even that is down from a peak of 28.1 billion pounds in 2006 and 2007, just before the Great Recession struck in 2008.
CONSUMPTION VS DEMAND
But consumption isn’t demand, and economists say actual demand is hard to measure, especially in the short term, because so many things affect consumption, of which price is only one. Over time, a picture of demand can be drawn by correlating prices paid and consumption, but even then, the picture is incomplete.
That being said, available ERS figures show beef demand really is rising over time. The amount of money consumers were willing to spend on choice beef last year was $6.29 a pound on 23.70 billion pounds of production, compared with $3.97 in 2006 when production totaled 26.15 billion pounds.
Export demand also is up over time. ERS data show exports last year at 2.266 billion pounds, up from 1.145 billion in 2006.
But that extra demand for choice beef isn’t countering the extra production resulting from a growing herd as seen in the ERS data for boxed beef value. Expectations for even more pressure may be having an effect on current beef prices as well, but this cannot be measured.
CASH CATTLE MARKETS WEAKER
Cash cattle markets Thursday were weaker with cattle trading on a dressed basis at $187 per cwt, down $1 to $3 from last week. On a live basis, cattle were bid $1 to $2 lower at $117, but asking prices held at $120.
Cattle traded last week $1 to $2 per cwt higher, at $118 to $119 live and $188 to $190 dressed.
The USDA’s choice cutout Thursday was $0.71 per cwt higher at $201.58, while select was up $0.77 at $192.82. The choice/select spread narrowed to $8.76 from $8.82 with 88 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Wednesday was $147.82 per cwt, up $0.27. This compares with the Aug settlement Thursday of $148.72, down $1.00.