Plenty of challenges remain for beef packers to resume what will pass for normal production in the post-pandemic era, but numbers suggest much progress the past two weeks.
Estimated cattle slaughter under federal inspection began to drop sharply the week ending April 10, with 536,000 head slaughtered, compared to 638,000 head the same week a year earlier, a difference of 102,000 head (-15.99%). Barring further COVID-19 complications, the week ending May 2 might be the bottom for slaughter: an estimated 425,000 head, which was 248,000 head fewer (-36.85%) than the prior year.
Jump ahead to the week ending May 23: Estimated slaughter of 555,000 head was 92,000 head fewer (-14.22%) than a year earlier. Trends are similar for the weeks in which actual slaughter under federal inspection data are available.
Depending on who’s running the abacus, individual packing plants are currently running from about 50% of capacity to near 90%. That’s relative to pre-pandemic capacity. Post-pandemic maximum capacity will likely be less, due to added worker safety measures to guard against COVID-19 infection.
Working through the backlog of fed cattle
Hobbled in a different pasture, although massive and burdensome, the backlog of market-ready fed cattle could be on the lower end of early estimates
Toward the end of April, agricultural economists Glynn Tonsor at Kansas State University and Lee Shulz at Iowa State University, estimated fed cattle carryover May 1 at 485,000 to 510,000 head. For June 1, they estimated 1.07 million to 1.34 million head. That’s in Fed Cattle Flows: Demonstrative Scenario Examples, which estimate the number of cattle on feed for more than 120 days and more than 150 days, as of April 1, utilizing monthly Cattle on Feed reports which account for feedlots with 1,000 head or more capacity.
“Too many producers being forced to delay feedlot marketings can quickly cause an oversupply of both market-ready cattle and over-fed, over-finished cattle and lead to an eventual market purge of heavy cattle at some point, which can drive prices down,” Tonsor and Shulz explained in their report. “It is important to remember that overall feedlot numbers are not burdensome; it is the supply of market-ready or near market-ready cattle that is burdensome relative to current slaughter capacity.”
However, in the May 18 episode of Agriculture Today, Tonsor explained it was possible to start June with fewer than 1 million head of fed cattle carryover if packers could maintain harvest levels above 500,000 head the last two weeks of May. Final harvest figures won't be available until mid-June.
Still, working through the existing backlog will be arduous.
“Even if we were running at 660,000 head like we were a year ago, if I’m correct that we have north of 500,000 head carryover, you have more than a full operating week (beef processing) just to deal with the backlog. So, it’s not just days or weeks; it’s really going to take months to push through this process,” Tonsor explained.
Recent feedlot placements will help
“Combined March and April placements were down 867,000 head from last year. This suggests a significant drop in expected feedlot marketings starting mostly in September and into October,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments.
“Of course, the delayed placements from March and April will show up starting in May and will be heavier, but the delay will help feedlots have a chance to get current. The feedlot industry will spend much of the summer working through the backlog of fed cattle but the hole from March and April feedlot placements should provide a marketing window to catch up by this fall if not before.”
In the latest monthly Livestock, Dairy and Poultry Outlook (LDPO), analysts with USDA's Economic Research Service (ERS) estimated there were 20.54 million head of cattle outside feedlots April 1. That was 657,000 head more (+3.30%) than the same time a year earlier.
“The buildup in fed cattle supplies that are market ready is expected to have a substantial and lasting effect on fed cattle prices,” say ERS analysts. “Prices will remain low as the supply of market-ready cattle remains above the sector's ability to process them, and the supply issue is expected to linger through 2021.”
Consequently, ERS lowered this year's average price forecast for fed steers (Five Area direct) to $104.08 per cwt: $118.32 in the first quarter; $99 in the second and third quarters; $100 in the fourth quarter. The projected annual average price for next year is $109.
Recent cash prices are significantly higher than the estimate. The question, of course, is will those prices hold? Stay tuned.