Beef Demand Rules Cattle, Beef Markets

Friday’s annual USDA Cattle (Inventory) report showed the US cattle herd on Jan. 1 was down about 1% from a year earlier, but will the report move cash and futures cattle markets substantially?  No, say some market analysts and traders because the strength seen in both markets over the last several months and years has been more about beef demand than about supply.

Beef demand has not been a deciding force in beef markets over the years.  Aside from some long-standing, seasonal trends, most long-term gains or declines in cattle markets could be traced to changes in supply.

 

LATEST RISE DIFFERENT

 

But the latest rise has been different in that the decline in fed cattle slaughter and beef production associated with a shrinking US cattle herd has been disproportionate to the price gains for both.

In fact, prices for cattle and beef appear to have room to grow.  Feedlots still can find feeder cattle to finish despite the drought-induced herd reduction that has taken place, but this may change quickly if sustained rain patterns change the forage picture in this country.

In the short run, though, feeder cattle supplies will remain adequate unless the Mexican border remains closed because of New World Screwworm.  The January Cattle on Feed report showed a decline in feedlot placements that revealed the lack of available Mexican feeder cattle with a sharp placements decline in Southern Plains feedlots.

There could be a surge once the border reopens.

 

PRODUCTION STEADY; ADJUSTED PRICES DOWN

 

As one market analyst pointed out, the wholesale price of beef adjusted for inflation last year actually was down, and fed beef production has continued apace when compared with 2015.

And, the fed cattle marketed to beef packers have been heavier, producing more beef per head, than ever, leading to 2024 beef production around 22.6 billion pounds, the third highest ever, the analyst said.

Another analyst said that while feeder cattle supplies have been tight over the last year or so, feedlots have always been able to find them.

 

CHANGING CONSUMERS

 

The consumer appears to be changing.  At one time, avoiding fat at all costs was the rage.  Consumers shied away from well-marbled beef at retail in an effort to avoid the fat.

Cattle and beef producers responded by breeding and feeding cattle with less fat and marbling.  Consumers bought it, comforted in the thought that they were avoiding fat.  But it came with a cost – taste.

Now, they are gravitating back toward a more marbled beef, enjoying the eating experience and paying for the quality.

Only time will tell how elastic this new-found beef demand is.

 

CATTLE, BEEF RECAP

 

The USDA reported formula and contract base prices for live FOB steers and heifers last week ranged from $201.74 per cwt to $209.26, compared with the previous week’s range of $201.58 to $204.93 per cwt.  FOB dressed steers, and heifers went for $316.06 per cwt to $327.24, compared with $314.56 to $321.61.

The USDA choice cutout Friday was up $0.20 per cwt at $327.68 while select was up $1.17 at $317.07.  The choice/select spread narrowed to $10.61 from $11.58 with 70 loads of fabricated product and 20 loads of trimmings and grinds sold into the spot market.

The USDA-listed weighted average wholesale price for fresh 90% lean beef was $367.85 per cwt, and 50% beef was $116.09.

The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.21 to $1.31 a bushel over the Mar corn contract, which settled at $4.82, down $0.08 1/4.

The CME Feeder Cattle Index for the seven days ended Thursday was $281.68 per cwt, up $0.61.  This compares with Friday’s Mar contract settlement of $275.72, up $2.52.