Fed cattle prices have dropped every week since the first week of August, only the second time since 1974 that a drop of this magnitude has occurred in this period, and the drop may not be over.
In Kansas alone, prices have dropped 13.4% over the period, going to an average of $129.94 the week ended Sep.25 from $150.06 the week of Aug. 7. But a combination of factors may keep the market on the ropes for a while longer.
Examining USDA statistics back to 1974, it is evident that large declines have happened before. The Livestock Marketing Information Center says the latest eight-week decline is nothing new.
The latest drop stands out for a couple of reasons. One is that this has been the largest eight-week price drop since the week ended May 27, 2011, when the drop was 15.4%. The next largest drop of more than 13% was in 2004.
Over the 41 years evaluated by the LMIC (including this year), 10 years, or 24%, had at least one eight-week period of a 13% or larger decline. The largest was the week ended Dec. 26, 2003, when prices dropped 26.2%.
SOME COMPARISONS
Overall, declines of 13% or more sometime in a year are not uncommon, occurring, on average, roughly one out of every four years, the LMIC said.
During the early August-to-late-September timeframe, over the last 41 years, only 14, or 34%, had a price decline.
Interestingly, during that time frame, this year’s drop was one of only two that were larger than 10%, the largest coming in 1974 when it was down 18.9%.
That qualifies this year’s price drop as “unusually large.”
WHAT HAPPENED?
The market’s natural lag in transmitting price cues back up the supply chain, along with a long, nasty drought, appear to have resulted in a collision of supply and demand that pressured prices unusually hard this year, and the price drop may not be over.
Supplies of competing meats also grew when cattle supplies could not, allowing more pork and chicken to enter the market as the drought ended. To be sure, competing meats had their own problems with Avian Influenza or Porcine Epidemic Diarrhea virus, but production hiccups were far shorter.
In the meantime, beef demand continued to rise, sending prices to record highs as the drought broke and producers could begin rebuilding herds. But that takes two to three years to produce meaningful increases in fed cattle slaughter.
But demand for feeder cattle far outstripped supply, and the cost of replacing feedlot cattle skyrocketed, and feed yard margins plummeted.
Feeders began growing and feeding the cattle they had to ever larger sizes to increase the amount of beef produced by each animal – right when consumers began to pull back from ever-increasing prices.
Now, those heavy weight cattle are coming to slaughter, producing the supply/demand collision that is taking prices sharply lower.
CASH FED CATTLE TRADE QUIET
Cash fed cattle markets Monday were quiet as feedlots posted generally smaller showlists for the week. No bids or offers were reported.
Prices plunged last week to $116 to $124 per cwt on a live basis, down $10 to $12 from the previous week. On a dressed basis, cattle traded at $187 to $190, down $12 to $14.
The USDA reported lower boxed beef prices again Monday with its choice cutout down $1.80 per cwt at $203.97 and select off $2.31 at $199.05 with 92 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Friday was $182.76 per cwt, down $5.13. This compares with the Oct settlement Monday of $178.12, down $1.37.