After a couple of wild weeks in cattle markets, maybe it’s time to take a step back to review the bigger picture, said Will Secor, Extension livestock economist at the University of Georgia, in a Livestock Marketing Information Center letter called In The Cattle Markets.
SUPPLIES TIGHT
The supply side remains tight with limited opportunities to expand in the short run, Secor said. Cull cows from the dairy sector may offset some of the reduction in beef cull cows on tighter dairy margins, but this offset is partial.
Before the federal government shutdown, dairy cow slaughter had risen above the same week last year, according to data from the USDA’s Agricultural Marketing Service and its National Agricultural Statistics Service. However, it remained lower than the 2019-2023 average.
The USDA data also showed beef cow slaughter remained well below last year and the previous five-year average.
Additionally, dressed weight increases may be topping out, Secor said. In September, year-over-year increases in cattle dressed weights ranged from 1.5% to 2.1%. In contrast, dressed weights in January saw year-over-year increases of around 3.2% to 5.3%.
Lastly, changes in beef imports were limited and likely more complementary to existing beef supplies, as imports often are lean beef being blended for ground beef, Secor said.
LONG-RUN SUPPLY FUNDAMENTALS SHIFTING
Long-run supply fundamentals appear to be shifting, Secor said. The industry is approaching a low in cattle inventory and likely will slowly (emphasis on slowly) build from here.
The dynamics depend on the opportunity cost of retaining heifers, interest rates, pasture and range availability and conditions, future market expectations and a host of other factors, Secor said.
Any rebuilding that does occur, even now, will take years to have its full effect, Secor said.
CONSUMER STILL WANTS BEEF
On the demand side, data suggests the US consumer still wants beef, Secor said. BLS inflation data indicates beef prices increased 1% month-over-month in September.
Cutout values also were up again, Secor said. Cutout values for the week-ending Oct. 31 were the highest since mid-September.
While market participant psychology may have shifted over the last two weeks, the market fundamentals remain mostly the same, Secor said. That’s not to say market behavior is unimportant. Clearly, it is for futures and cash markets.
However, the bigger picture remains relatively unchanged – tight supplies and strong demand are resulting in strong prices that are expected to continue until one of those starts to change in a material way, Secor said. Given the dynamics of beef cattle supply and demand, the changes may take some time to develop.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $234.59 per cwt to $238.48, compared with last week’s range of $236.75 to $249.43 per cwt. FOB dressed steers and heifers went for $368.31 per cwt to $373.39, compared with $373.28 to $378.93.
The USDA choice cutout Wednesday was up $0.68 per cwt at $378.26 while select was down $1.00 at $360.25. The choice/select spread widened to $18.01 from $16.33 with 87 loads of fabricated product and 30 loads of trimmings and grinds sold into the spot market.
The USDA-listed the weighted average wholesale price for fresh 90% lean beef as $405.79 per cwt, and 50% beef was $176.29.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.05 to $1.20 a bushel over the Dec corn contract, which settled at $4.35, up $0.03 1/2.
The CME Feeder Cattle Index for the seven days ended Tuesday was $349.42 per cwt, up $2.63. This compares with Wednesday’s Nov contract settlement of $325.72, down $9.25.