For the first time in several years it appears that all segments of cattle and beef markets are on the same page and responding to tightening supply fundamentals, said Oklahoma State University Agricultural Economist Derrell Peel, in a letter to Extension agents called Cow-Calf Corner.
The complex linkages across cattle and beef markets mean market-adjustment dynamics are relatively slow under the best of circumstances, Peel said. But things are looking up.
DROUGHT, PANDEMIC EFFECTS
Pandemic-related delays in 2020 stretched into 2021, and drought effects since late 2020 contributed to a delayed transition of fundamentals from feeder cattle markets through fed cattle markets into beef markets, he said.
Cattle numbers declined for several years since the 2018 peak beef cow herd, Peel said. Declining calf crop numbers should have led to peak cyclical beef production by 2020, but pandemic delays pushed beef production from 2020 into 2021.
Drought liquidation in 2021 and 2022 led to further short-term beef production increases, he said. Record beef production in 2022 occurred four years after the peak calf crop.
Drought the past two years resulted in additional heifer placements and caused early marketing of calves in 2022 that maintained feedlot inventories above year-earlier levels until late in the year, Peel said. Feedlot inventories declined year over year for five straight months and will continue decreasing.
Feedlot marketings and beef production were higher year over year in January but that appears to be changing, he said.
CARCASS WEIGHTS DOWN
Lower carcass weights and declining cattle slaughter have 2023 beef production down 4.5% by early March, he said. Decreasing cattle numbers since the 2018 peak calf crop has finally worked through the system.
Peel said he expected cattle slaughter and beef production to decrease for through 2023 and beyond. With continuing drought, it is not clear exactly how cattle and beef market timing will develop, but the question is not one of whether beef production will fall, but how fast and how much it will fall.
Cattle prices are expected to continue trending higher in 2023 to a new record at some point in the next two or three years.
BEEF PRICES WILL RESPOND
Higher cattle prices will push wholesale and retail beef prices against beef demand, which remains strong but somewhat muted currently, Peel said. There will be resistance, but decreasing beef supplies will push beef prices higher.
It will take time for domestic and international demand to adjust to limited beef supplies, but in the meantime, margins between cow/calf producer and consumer will be squeezed, he said. The tightest pinch-point will be when heifer retention resumes in earnest. This likely will begin in late 2023 and continue through 2024 and perhaps beyond.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers last week ranged from $164.79 to $166.59 per cwt, compared with the previous week’s range of $159.00 to $165.08. FOB dressed steers, and heifers went for $258.17 to $264.02 per cwt, versus $254.08 to $261.83.
The USDA choice cutout Friday was up $0.31 per cwt at $284.91 while select was off $4.51 at $271.54. The choice/select spread widened to $13.37 from $8.55 with 64 loads of fabricated product and 32 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.55 to $1.70 a bushel over the May corn contract. Bids in Kansas were steady at $0.75 over May, which settled at $6.17 1/4 a bushel, up $0.05 3/4.
The CME Feeder Cattle Index for the seven days ended Thursday was $188.83 per cwt, up $0.11. This compares with Friday’s Mar contract settlement of $191.47 per cwt, down $1.60.