Studies Suggest Fed Cattle Peak By Spring

Prices for slaughter-ready cattle dipped last week, but long-term studies of the relationship between the cattle cycle and fed cattle prices indicates the peak could come in the next six months.

Purdue University Extension Economist Chris Hurt says studies of cattle cycles and prices suggest that prices tend to hit their peak in the early phase of cow expansion.  At this phase of the cattle cycle, the number of market-ready animals is small after long-term herd contraction, a condition that is only made worse by the retention of older cows and heifers for breeding.

The current cattle cycle began in 2006 when beef cow populations reached a peak of 32.7 million head.  From there, the herd declined to the Jan. 1, 2014, level of 29 million, an 11% decline.  However, because of a variety of factors the US cow herd has really been declining for most of 20 years.

Now, with the return of better economic times, the rebuilding of the US cow herd appears to have begun in earnest as beef cow slaughter declines noticeably and heifer slaughter fades.

USDA data show beef cow slaughter is down 18% this year with a 23% decline from July through September.  A change of this magnitude suggests either some catastrophic loss of cow numbers or that producers are holding on to more cows.

Hurt said year-to-date reductions would mean 770,000 fewer heifers being sent to slaughter, 550,000 fewer beef cows and 340,000 fewer dairy cows.  In total, nearly 1.7 million fewer females this year went to slaughter, a decline of more than 5%.




As the beef supply declines into 2016 as herd expansion grows, Hurt thinks product prices could move higher, although value growth may be limited by competition from rising production of pork and poultry.

That lid on beef prices may limit the extent to which cattle prices can rise.  It may be that the peak will be limited more by the time it takes for competing meats to expand than by shortages of beef or slaughter cattle, i.e., within the next six months.

By spring, increased supplies of chicken, turkey and pork may provide producers with attractive alternatives to high-priced beef.  Retail, and wholesale product prices could wilt from the competition, and cattle prices could sag.

Live cattle futures suggest just such a cap on fed cattle prices.  As of Wednesday’s settlement, futures traders point to cattle prices in the mid-$160s through April.  From there confidence dips to the mid-$150s.




Boxed beef values Wednesday were mixed to firmer, with choice prices up smartly and select prices somewhat lower.  Ribs and rounds were firm to higher, chucks were weak and loins were mixed (higher on choice and lower on select).  Trimmings were weaker as moderate-to-heavy offerings overwhelmed moderate demand.

The USDA’s boxed-beef cutout value Wednesday showed choice beef was up $1.10 to $251.24 while select beef was down $0.37 to $238.12.  However, prices remained below a week ago.  Choice was down $2.39, or 0.94%, from $253.63.  Select had dropped $1.65, or 0.69%, in value.

Wednesday’s sales volume was good, with 149 loads of fabricated product sold into the spot market.

Feeder cattle followed live cattle lower Wednesday despite its discount to the cash index.  Weakness in the live cattle pit was cited, yet such losses can only continue for a short period with the index holding its ground more capably.

The CME Feeder Cattle Index for the seven days ended Tuesday was $239.99, down only $0.18 from Monday.  The nearby Nov contract settled at $235.77, down $1.35.