Beef production and fed cattle price outlook

Markets
Jul 12, 2013
by WLJ

At this point in 2013, fed cattle prices have generally been disappointing compared to 2012 forecasts which called for prices in the low $130s for much of the first half of 2013. Instead, slaughter cattle prices averaged $125.12 per cwt for the first six months of the year, explained Darrell R. Mark, adjunct professor of economics at South Dakota State University.

“Prices ranged from $120.04 to $128.44 per hundredweight for the first half of the year across the 5-area market. The spring high was posted in the first week of May, while the market appeared to find support for a summer low at about $120 per cwt for the last several weeks of June,” he said.

In addition to weaker consumer demand during the first half of the year, Mark said higher than expected beef production contributed to the lower than expected fed cattle prices.

“Based on weekly data, federally inspected beef production totaled about 12.57 billion pounds from January through June 2013, which is only about 0.1 percent lower than during the same six months of 2012,” Mark said. “Generally, smaller cattle inventories over the last several years were thought to result in lower beef production in the first half of 2013, even though cattle dressed weights generally trend higher each year.”

From January through June, Mark explained that federally inspected cattle dressed weights averaged 791 pounds, compared to 784 pounds last year. While that 0.8 percent increase isn’t far from the long term trendline, it is well below the 2.3 percent increase seen in 2012 as a result of increased feeding of beta agonists last year.

“Cattle slaughter numbers, of course, are the other driver behind changes in beef production. From January to June 2013, federally inspected cattle slaughter totaled 15.9 million head, about 1 percent less than in 2012,” Mark said. “While that decrease in slaughter was enough to offset the modest increase in dressed weights, it is particularly interesting this year to examine the make-up of total cattle slaughter numbers.”

He added that steer slaughter, which generally comprises about 46 percent of total cattle slaughter, was 1 percent lower during the first half of 2013. Fed heifer slaughter, though, was 4.1 percent below the same period a year ago.

“The drop in heifer slaughter during this time indicates that producers had made plans in the latter part of 2012 to retain additional beef heifers for breeding,” he said.

The fact that beef cow slaughter ran about 11 percent below year-ago levels during January and February Mark said further supported expansion possibilities in the beef cow industry.

“However, those plans changed in early spring as feed prices remained high and dry conditions prevailed across key areas of cow/calf country,” he said. “This likely contributed to the increase in feeder cattle placements during March and April as some of the retained heifers were placed on feed.”

More dramatically, Mark said beef cow slaughter averaged 15 percent higher than a year ago on a weekly basis from mid-March through mid-May.

For the first half of 2013, fed steer and heifer slaughter was 2 percent lower than in 2012 while combined beef and dairy cow slaughter was 3.4 percent higher.

“This means beef production shifted towards more hamburger and processed beef items as those generally result from non-fed cow slaughter,” he said.

Production in 2013

As we look toward the second half of 2013, Mark said it is likely that much-improved pasture and range conditions and prospects for much lower corn prices will result in increased interest in beef cow herd growth.

Therefore, he said beef cow slaughter is likely to drop in the months ahead and result in 10-12 percent less cow beef production compared to the second half of 2012. While cow slaughter and cow beef production will be the key to how much total beef production drops in the second half of 2013, fed steer and heifer beef production will likely decline around 4 percent compared to the previous year.

“Assuming those declines in both fed and non-fed beef production, the second half of 2013 will likely result in a counter-seasonal decrease in beef production of 2 percent compared to the first six months of the year,” he said. “For the year, beef production is expected to be about 25.1 billion pounds in 2013, which would be about 3.2 percent less than in 2012.”

Lower beef production in the second half of 2013 will be supportive to fed cattle prices. Likely, slaughter cattle prices will average in the $122 to125 per cwt range through the third quarter. Fourth quarter prices could average in the upper $120s, reflecting a normal seasonal increase in prices.

“While those prices are not much different than the first half of the year, they are 2.5 to 3 percent higher than in the second half of 2012. And, still higher prices could materialize if consumer demand improves through the end of the year,” he said.

Looking ahead to 2014, Mark said cattle slaughter numbers will likely decrease by 6 to 7 percent for the year.

“Assuming dressed carcass weights increase by about 1 percent, beef production for the year will decrease 5.5-6 percent,” Mark said. “This should support fed cattle prices in the upper-$120s to mid-$130s throughout the year, with an annual average price around $130 to 134 per cwt.” — WLJ

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