ERS Sees 2017 Beef, Veal Prices Lower; 2018 Higher

The US Economic Research Service predicts beef and veal prices will decrease 1.0% to 2.0% this year but rise 1% to 2% in 2018, but sees cattle prices struggling.

The ERS made the prediction in its latest Consumer Price Index report under the breakdown called “Food Price Outlook, 2017-18.”  It went on to say that beef and veal prices declined 0.7% from July to August and are 0.8% higher than at this time last year, the report said.  As of August, the US cattle herd has expanded to its largest size since August 2008.

In addition, relatively large placements of cattle into feedlots in the first half of 2017, as well as more cattle available outside of feedlots awaiting placement, has increased the forecast for commercial beef production, the ERS said.  This has resulted in pressure on prices throughout the cattle and beef complex.

 

CONSUMER PRICE INDEX UP 0.3%

 

The all-items Consumer Price Index, a measure of economy-wide inflation, was up 0.3% from July to August 2017 and is 1.9% above the August 2016 level, the report said.  The CPI for all food rose 0.1% from July to August, and food prices were 1.1% higher than in August of 2016.

The degree of food price inflation varies depending on whether the food was purchased for consumption at home or away from home, the ERS said.  The food-at-home CPI was flat from July to August and is 0.3% higher than last August, while the food-away-from-home CPI rose 0.3% in August and is 2.2% higher than August 2016.

Food-at-home prices and food-away-from-home prices have recently diverged, the report said.  Restaurant prices have been rising consistently month-over-month, in part because of differences in the cost structure of restaurants versus supermarkets or grocery stores.

Grocery prices have posted lower year-over-year price increases, while restaurant prices primarily comprise labor and rental costs with only a small portion going toward food.  For this reason, decreasing farm-level and wholesale food prices have had less of an effect on restaurant menu prices.

 

FOOD PRODUCER PRICE INCEX DOWN

 

Unprocessed foods and feeds posted a monthly decrease of 7.4% from July to August, prices for processed foods and feeds fell 0.7%, and finished consumer foods were down 0.9% over the same period, the ERS said.

Price volatility decreases as products move from the farm to the wholesale to the retail sectors, the report said.  The CPI tends to lag the PPI, so watching the PPI is useful in understanding what may happen to the CPI.

Inflationary factors lessened for cattle and wholesale beef prices last year and were expected to continue under pressure in 2017, the ERS said.  August cattle prices declined 6.8% and were down 6.9% from the same period last year.

The ERS expected cattle prices to decline 1.5% to 2.5% this year and fall an additional 2.0% to 3.0% in 2018.

 

CATTLE, BEEF RECAP

 

Three lots of cattle sold last Wednesday on the Livestock Exchange video auction at $106.50 to $106.75 per cwt, up $1.75 to $2 from the previous week.

Cash trade was reported last week at $104 to $109.50 per cwt on a live basis, mostly $108, up about $2 to $4 from the previous week, and at $170 to $172 on a dressed basis, up $3.50 to $5.

The USDA’s choice cutout Tuesday was up $2.82 per cwt at $196.78, while select was up $2.22 at $193.11.  The choice/select spread widened to $3.67 from $3.07 with 64 loads of fabricated product sold into the spot market.

The CME Feeder Cattle index for the seven days ended Monday was $152.32 per cwt, down $0.28.  This compares with Tuesday’s Sep settlement of $150.57, up $0.10, and the Oct settlement of $150.65, down $0.95.