Debate Continues Over Cattle Price Direction

Debate continues to swirl over the direction of slaughter cattle prices as they reach a decision point in the year.  Will they follow normal trends lower or build support?

History says slaughter cattle prices should peak in mid-April and work lower into the dog days of summer.  However, many traders say the market dynamics have changed and that beef demand, especially demand for choice product, will underpin a tight market and may even move prices higher.

The USDA’s weekly five-area weighted average steer price for last week was $164.23 per cwt, down $3.34, or 1.99%, from $167.57 the previous week.  Last week also was $15.07, or 10.1%, above last year’s $149.16.

USDA data show slaughter cattle prices declining into July and then rising into early December.  But markets become jumpy and prices more volatile when supplies are short.

 

CATTLE NUMBERS TIGHT

 

No one denies that cattle numbers are historically tight after the total herd dropped to a 63-year low a year ago.  Rebuilding efforts are underway, pulling heifers into the cow herd instead of the feedlot herd.

That tightness of supply, coupled with a growing economy and strong beef demand is behind the belief that fed cattle prices will defy the odds and all but skip the price decline into summer.

As incomes rise and back yard grilling becomes much more active, beef demand will rise since beef is the preferred meat to lay over hot charcoal or gas grills.  Ground beef is the most common form of the beef being grilled, but it’s beef, and supports cattle slaughter and packer demand for a limited supply of cattle.

 

SLAUGHTER, BEEF PRODUCTION DOWN

 

As proof of limited fresh beef availability, the bulls point to declining slaughter rates this year and lowered beef production.  While slaughter cattle weights are up from last year and the average, which blunts the full effect of lowered slaughter rates, the fact is beef production is down.  And for the last 1 ½ months, production has been down counter-seasonally.

The USDA estimated total beef production last week at 408.3 million pounds, down 19.4 million, or 4.54%, from 427.7 last year and down 47.3 million, or 10.4%, from 455.6 million last year.

 

COMPETITION A LIMITING FACTOR

 

Retail and restaurant sales of beef are expected to run into stiff competition from increased supplies of pork and chicken as those two industries ramp up production.  The USDA, in its latest World Agricultural Supply and Demand Estimates report, projected 2015 pork production to be up 6.11% from last year to 24.240 billion pounds.  Chicken production was estimated to rise 3.83% to 40.025 billion pounds.

Beef prices also could encounter resistance from beef.  The USDA’s Cold Storage report showed 492.116 million pounds of beef on ice as of Feb. 28, up 20% from a year ago.

But the bulls say the growing economy will take beef and cattle prices to new heights this year.

“The market has changed,” they say.

 

CASH CATTLE SLOW

 

Cash cattle markets Tuesday were slow.  The USDA reported limited action at $255.41 per cwt on a dressed basis, down from $261.56 last week, and private sources told of a $162- to $163-per-cwt live-basis sale in Texas for May delivery.

Last week, a few cattle changed hands at $163 to $165.50 per cwt live and at $261 to $263 dressed, compared with the bulk of the previous week’s action at $167 and $265 to $267.

The USDA’s choice cutout was up $0.75 per cwt at $258.45, while select was up $0.23 at $249.42.

The CME Feeder Cattle Index for the seven days ended Monday was $219.28 per cwt, down $0.29, compared with Tuesday’s settlement of the Apr futures contract at $213.20, up $0.95.