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Packers facing perfect stormPackers facing perfect storm
Sharply higher prices for cash steers and feeder cattle expected.
Dennis Smith
December 16, 2024
3 Min Read
Preston Keres/U.S. Department of Agriculture FPAC
I’ll cut right to the chase. Entering 2025, the beef fundamental makeup is such that beef packers are facing a perfect storm. I visualize sharply higher cattle prices reaching price levels never dreamed of. Below is a list of 10 bullish fundamentals that are coming into play:
The 2024 calf crop, reported in the cattle inventory report on Jan. 31, should be record small.
The beef cow herd is down over 10% from the peak.
Due to drought in the U.S., the industry has placed a decade-high percentage of the calf crop, more than 80%.
The Mexican border closure is disruptive to feeder imports and will continue to restrict imports even after the border is reopened due to safety protocols.
Plentiful rain in the southern Plains since November, boosting winter wheat crop ratings, will limit placements this winter.
Potential tariffs imposed against Mexico and Canada will shut down beef imports from the northern and southern border.
JBS/Brazil shut down 11 beef plants during November to break the cash steer market in Brazil. Steer prices rallied more than 50% in four months. This is expected to severely curtail U.S. beef imports from Brazil during December and spilling over into January.
Dressed cattle weights have peaked.
U.S. beef demand remains stronger than expected. In the wake of the U.S. presidential election, U.S. consumer confidence has soared.
Two new beef slaughter plants are scheduled to come on line in April, expanding industry slaughter capacity at a time when on-feed numbers are likely to be dropping sharply.
Beef packers are incredibly good at what they do: Buy live cattle for as little as possible, and sell beef for as high as possible, assuring profits. During 2024, nearly everyone, including me, expected cattle supplies to get tight and prices to soar, with packers losing control of the market and bleeding red ink in the process. That did not happen.
While prices were strong at times, beef packers utilized the tool of slowing chain speed to prevent wholesale beef prices from falling sharply while keeping the cash steer market under wraps. This tool had three impacts on the market:
Constantly slowing the marketing rate in combination with larger placements than expected allowed on-feed inventory to remain near year-ago levels.
The slower chain speed over time forced cattle weights upward and into all-time record highs. This was engineered by the packers to help preserve margins.
While still a challenging environment, beef packer margins for much of the year remained profitable.
Mathematically, in my opinion, it will be impossible to keep on-feed inventory near 2024 levels during 2025. The cattle inventory report, scheduled for release on Jan. 31, will confirm another decline in the calf crop. As stated above, both feeder cattle imports and beef imports from Mexico and Canada will be hampered next year. Beef imports from Brazil are also expected to decline.
Sharply lower placements, fueled by excellent wheat pasture and fewer numbers of calves available, will drive on-feed inventory sharply lower early in 2025. At the same time, industry slaughter capacity is expected to increase, creating more competition for fewer cattle.
As beef production falls, one should expect sharply higher cash steer prices and sharply higher feeder cattle prices. Both will see unheard-of record highs in 2025. At times, beef packer processing margins will be highly unprofitable. When it gets to an extreme, wholesale beef prices will have to soar higher to ration the tight supply.
If the Corn Belt has another good growing season, keeping feed prices from moving sharply higher, the onset of heifer retention will throw another bullish log on the fire. Historic price levels and historic volatility lie ahead.
Dennis publishes his widely followed evening livestock wire for clients and subscribers. For a free 30-day trial send an email to: [email protected].
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