It looks like the old adage, that high prices cure high prices is holding true as the high prices do their job in stimulating herd expansion that now is pressuring cattle prices.
Chris Hurt, livestock market extension economist at Purdue University wrote recently that most likely, the highest cash cattle prices of this cattle cycle are in the rear-view mirror. Finished cattle averaged near $155 last year and are expected to be near $150 for this year and then moderate even more into the high $130s or low $140s in 2016.
Fed cattle prices reached their zenith around $170 per cwt on a live basis late in 2014 and early spring this year only to fall into the $120s by October. This must have been one of the greatest price declines ever, Hurt said.
The decline in beef prices was preceded by a similar decline in live hog prices from mid-2014 to early 2015.
BASIC SUPPLY AND DEMAND
Some of the roller-coaster price action in cattle markets can be explained by basic supply and demand relationships, but markets tend to overshoot the highs and the lows of each cycle producing the buzz kill at each extreme.
That certainly was the case this time, Hurt said.
Slaughter cattle weights are up an average of 2.5% for the year at near 1,400 pounds per head, leaving a 6% decline in slaughter to produce only a 3.5% decline in domestic beef production.
But record-high cattle and beef prices, along with a relatively strong US dollar have stimulated major shifts in trade patterns and increased the domestic availability of beef, he said. Beef imports are up with data for August showing imports were up 32% over the same period a year earlier.
At the same time, high US beef prices combined with unfavorable exchange rates have resulted in a 12% decline in beef exports, leaving the meat at home to be consumed domestically.
“The surprising bottom line is that US consumers have had more beef available so far this year – not less,” Hurt said. “The 6% lower animal numbers have been more than offset by 7% more supply from weights and net trade impacts,” making available supplies up 1% so far this year.
THE CONSUMER ANGLE
Record-high retail beef prices probably also contributed to the record drop in finished cattle prices this year, Hurt said. Retail beef prices rose to a high of $6.42 a pound in May, according to USDA data. These prices told consumers to consider lower-priced cuts or even alternative meats.
Those consumers found what they were looking for in growing pork and chicken supplies and declining prices for both as their own production cycles kicked into high gear and encouraged more production.
CASH FED CATTLE MARKETS UNTRADED
Cash fed cattle markets remain lightly traded this week. A few Corn Belt sales were reported by the USDA at $207 to $208 per cwt on a dressed basis, steady to $1 higher than last week.
Some are projecting trade this week as much as $2 per cwt higher. No other bids have been reported, although asking prices were $140 to $142.
Cash action last week, at mostly $138 per cwt on a live basis with some up to $139, was up from $136 to $138 the week before. Dressed-basis trade was reported at $206 to mostly $208 and up to $210, compared with $206 to $209 a week earlier.
Wholesale beef prices Wednesday were mixed, with the USDA choice cutout value at $220.14 per cwt, up $1.74 on the day, and its select cutout at $209.69, off $0.63.
The choice/select spread widened to $10.45 from $8.08 on Tuesday, and there were 90 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Tuesday was $192.88, up $0.04. This compares with the Nov settlement Wednesday of $186.15, down $4.50.