Writing for the National Cattlemen’s Beef Association, Market Analyst Patrick Linnell of CattleFax wrote, Cattle and beef markets continue the march higher, yet question regarding the economy and recessionary fears remain unanswered, including their effect on the consumer as it pertains to beef demand.
Nonetheless, as cyclically tighter cattle and beef supplies continue, smaller supplies have clearly outweighed demand challenges, pressing prices higher, Linnell said. With fed cattle prices already pushing to record highs, cattle numbers are set to continue tightening.
PRODUCERS STILL REDUCING
Cow-calf producers have been reducing inventories for years, he said. Profitability was constrained even pre-pandemic, resulting smaller herd sizes in 2019.
The pandemic-induced cattle backlog from plant shutdowns pressured prices and margins further, Linnell said. The severe drought that followed from 2021 to early 2023 raised feed prices and limited forage availability, causing the liquidation to continue.
As a result of the prolonged liquidation, 2023 is expected to be the fifth year of consecutively smaller US calf crops, he said. The 33.5 million head projected to be born this year will be 2.8 million, or 8%, smaller compared with the cyclical peak in 2018.
The years of consecutively smaller calf crops were slow to translate into reduced fed cattle and beef supplies because of the unique and unfortunate timing of the pandemic and the drought, Linnell said. 2022 was a record year for US beef tonnage despite the typical 1- to 2-year lag between the cow herd and fed slaughter.
FED CATTLE IN TRANSITION
Fed cattle supplies this year have been in a transition, he said. First-quarter fed slaughter was down 0.4% (partially because of comparisons to 2022 Omicron effects) but has been expanding the decline.
With a supply of feeder cattle and calves down 3% at the beginning of 2023, declines in fed cattle supplies are expected to be recorded through the rest of the year, Linnell said.
But higher cattle prices are increasing the ability and incentive for cow-calf producers to re-stock and expand, he said. Improved pasture conditions also are allowing expansion in many regions, although decisions made in 2023 will take several years to materialize in larger fed cattle supplies.
In the meantime, annual beef production declines are expected to continue, Linnell said. Fed cattle supplies are expected to be seasonally larger in the summer before declining into the fourth quarter.
However, carcass weights will be partially offsetting deeper into the second half as higher prices incentivize feeding to heavier endpoints, he said. As supplies continue tightening, higher prices will remain the trend across the supply chain.
Retail prices likely will move higher now as reduced supplies become more evident, Linnell said. The question will be how much higher as economic pressures remain and competing protein supplies remain more adequate.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $181.05 per cwt to $187.36, compared with last week’s range of $179.20 to $190.48 per cwt. FOB dressed steers, and heifers went for $285.95 per cwt to $292.33, compared with $284.31 to $292.45.
The USDA choice cutout Tuesday was up $4.32 per cwt at $306.10 while select was up $1.87 at $279.60. The choice/select spread widened to $26.50 from $24.05 with 84 loads of fabricated product and 18 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were steady at $1.85 to $2.05 a bushel over the Sep corn contract, which settled at $4.97 a bushel, down $0.07.
The CME Feeder Cattle Index for the seven days ended Monday was $244.69 per cwt, up $0.83. This compares with Tuesday’s Sep contract settlement of $248.47 per cwt, up $2.87.