The cattle price wheel continues spinning at a near-record pace, but the bearings are getting a bit stickier with recent instances of weekly regional cash feeder cattle prices moving a touch lower year-to-year.
“Look for prices to erode year-on-year rather than collapse,” say analysts with Livestock Marketing Information Center (LMIC), in the most recent Livestock Monitor. Analysts with USDA’s Ag Marketing Service (AMS) agree. “On a quarterly average basis, fed cattle, yearling (700- to 800-pound steer), and calf (500- to 600-pound steer) prices all cyclically peaked in the fourth quarter of 2014,” AMS analysts explain. “Still, those prices posted year-over-year gains in the first half of 2015, but are expected to be mostly below a year ago for the balance of this year and throughout 2016.”
LMIC forecasts average yearling steer prices (700-800 pounds, basis the Southern Plains) in the third quarter to be about $12 to $16 lower year-over-year (about 6% less). They say yearling steer prices in the fourth quarter could be 10%-15% less year-over-year.
The LMIC folks expect calf prices to remain higher year-over-year in the third quarter before declining about 8% year-over-year in the last quarter.
Anticipated increases in beef supplies is part of it, as more heifer and cow retention—enabled by the lushest average pasture conditions in two decades—return more calves to the system.
Plus, LMIC analysts explain time has run out on the price boost calves and yearlings received from lower feed costs, at least into 2016.
As it is, cattle feeders have done a phenomenal job of doing more with less, placing cattle at heavier weights and feeding them longer. The increase in average carcass dressed weighs continues to counter some of the decline in number of head slaughtered.
According to LMIC, first quarter and second quarter beef production this year were lower by 5.5% and 7.8%, respectively, year-over-year. For the last two quarters, they expect beef production to slightly eclipse last year.
Meanwhile, competing meat supplies continue to expand.
Analysts with USDA’s Economic Research Service (ERS) expect pork production this year to be 7.6% more than last year (July, Livestock, Dairy and Poultry Outlook). The most recent World Agricultural Supply and Demand Estimates suggest a 5% increase in broiler production year-over-year.
Fed steer prices peaked in the fourth quarter of last year, according to LMIC ($165.59 per cwt, based on 5-market USDA AMS data). Fed steer prices were 11% and 7% higher year-over-year in the first two quarters of this year, respectively, at $162.43 and $158.11. For the next two quarters, LMIC projects the average fed steer price to be 5% and 6% lower year-over-year.
“It is critical to note that rather high fed cattle prices have not translated into profits for cattle feeders,” LMIC analysts note. “In fact, their red ink has been significant and losses are increasing. In 2014, cattle feeders posted very high profits, but 2015 has turned into a year of red ink based on feeding out a 750-pound steer. Those losses are beginning to pressure yearling and calf prices. Over the balance of this summer, the most abrupt adjustments for lower prices and larger price volatility week-to-week could be for heavyweight feeder cattle.”
With that said, Derrell Peel, Oklahoma State University Extension livestock marketing specialist, observed in his weekly market comments this week that monthly retail meat prices continue higher. Despite increased production, he notes pork and poultry prices increased in June, while beef maintained its record value relative to competing meats. Earlier this summer, Peel pointed out the apparent lack of substitution between beef and competing meats, underscored by these relative price relationships.
As beef prices slog through the seasonal price doldrums currently, Peel explains, “The ability of beef to continue holding record price levels relative to pork and poultry will depend not only on prices of competing meats, but also continued growth in the U.S. economy, consumer income impacts of things like gasoline prices and the strength of foreign demand for U.S. beef.”
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