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Price corner nearing

published: June 10th 2022
by: Wes Ishmael

The long awaited, often delayed transition toward higher cattle prices finally showed signs of life through the first week of June, although there is a pile of fed cattle to work through this summer.


“The futures market has begun to regain some optimism for feeder cattle heading through the summer, as it should,” according to Andrew P. Griffith, agricultural economist at the University of Tennessee, in early-June weekly market comments. “The number of cattle placed on feed from Dec. through April is 2.4% or 229,000 head more than the same five months the previous year. Given the smaller calf crop in 2021 compared to 2020, the increase in cattle on feed is an even bigger deal. This simply means there will be fewer cattle to place in coming months, which should provide feeder cattle a boost moving through the summer and into the fall months. The question is if this expectation will come to fruition and even the largest players in the cattle business cannot answer that question.”


USDA's Economic Research Service (ERS) projects cattle prices next year to increase for a second consecutive year and approach the record-high levels of 2014, when the U.S. cattle inventory was the least since 1952.


“With a smaller 2022 calf crop and higher anticipated beef cow slaughter in 2022, calf supplies are expected to contract in 2023,” say ERS analysts, in the May Livestock, Dairy and Poultry Outlook (LDPO). “The average annual feeder steer price is expected to climb to $198.00/cwt. in 2023, $35 (+22%) than the projection for 2022.”


So far this year, ERS analysts point out the faster pace of placements and slower than expected fed cattle marketing resulted in the largest on-feed numbers recorded for the month of April.


“This has likely kept feeder calf prices restrained, given late-2022 fed cattle prices implied by the futures market for late 2022,” say ERS analysts. “The third-quarter 2022 price forecast is raised $1, but the fourth-quarter 2022 price is lowered $2, for an annual forecast of $162.80/cwt., 20¢ lower than last month’s forecast.”


Specifically, ERS projects feeder steers prices (basis 750-800 lbs. in Oklahoma City) at $159 in the second quarter, $166 in the third quarter and $170 in the fourth quarter. Price for the first quarter of next year is projected at $168.


Fed cattle prices aim higher



Although looming, plentiful summer supplies will challenge negotiated cash fed cattle prices, fundamentals suggest significant gains heading toward the fourth quarter.


ERS increased both forecast beef production and fed steer prices slightly for this year, in May’s World Agricultural Supply and Demand Estimates.


ERS increased the annual average five-area direct fed steer priced for this year by 60¢ to $140.10/cwt. That was based on current prices and expectations of tighter supplies in the second half of this year. Average prices are projected at $140 in the second quarter, $136 in the third quarter and $145 in the fourth quarter.


The average annual price next year is forecast to be $153, lifted by tighter supplies.


ERS increased expected beef production slightly for this year, compared to the previous month, to 27.84 billion lbs. That would be 106 million lbs. less than last year (-0.4%).


“Beef production is raised, with more cattle placed in feedlots sooner than normally expected due to drought conditions, supporting higher annual fed cattle slaughter,” say ERS analysts. “Additionally, cow slaughter is forecast higher.”


Beef production next year is forecast at 25.95 billion lbs., which would be 1.89 billion lbs. less (-6.8%) compared to this year.


Total red meat and poultry production this year is projected to be 106.38 billion lbs., slightly more than the previous month’s estimate. The total would be 431 million lbs. less than last year (-0.4%). Total red meat and poultry production next year is forecast to be 105.34 billion lbs., which would be 1.04 billion lbs. less than this year (-0.97%) less than this year.


Beef herd contraction continues


Cow slaughter through the first 20 weeks of this year was 6% more than last year, according to the Livestock Marketing Information Center (LMIC), in the Livestock Monitor.


“The U.S. has processed about 150,000 head more than the same time in 2021,” say LMIC analysts. “Beef cow slaughter has been the primary driver, averaging over 75,000 head a week this year compared to last year’s 65,000 head. Drought is listed as one of the key reasons…”


LMIC analysts note the current pace of beef cow slaughter implies an annual reduction in the national beef cow herd of more than 2%.


“High fertilizer and fuel prices are adding to the extraordinary cattle industry challenges in 2022. High input costs are causing some producers that are not facing drought conditions to reduce or skip fertilization of pastures and hay fields. This will result in additional forage reduction and push herd inventories even lower,” according to Derrell Peel, Extension livestock marketing specialist, in his late-May market comments.


From Jan. through April, Peel explains beef cow slaughter equated to 4.2% of the Jan. 1 inventory. It was 3.0% for the same period from 1986 though 2021.


“The highest previous culling percentage for the January through April period was 3.7% in 1986,” Peel says. “The beef cow herd decline this year may well be the largest since 1986, when the beef cow herd decreased 4.7% year over year, a drop of 1.65 million head in one year.”


“Drought conditions and higher operating costs have encouraged the rapid culling of beef cows in first-quarter 2022 to levels not seen in decades,” say ERS analysts, in the LDPO. “Also, based on USDA Agricultural Marketing Service reports for actual weekly slaughter under federal inspection, April 2022 showed the highest number of beef cows slaughtered for the month since 1996. There were over 5 million more beef cows on Jan. 1 of 1996 than Jan. 1 of this year. Subsequently, the outlook weakens for the potential calf crops in 2022 and 2023, further reducing potential cattle placements year over year in late 2022 and early 2023.”


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