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Weighing The Market

published: November 12th 2021
by: Wes Ishmael

Fed cattle prices finally bloom

“Following the ripple effects of last year’s pandemic volatility, it appears that feedlot production has moved past the cyclically peak numbers and will decrease consistently going forward,” explained Der-rell Peel, Extension livestock marketing specialist at Oklahoma State Uni-versity, in his late-October weekly market comments. He was talking about the October Cattle on Feed report.
    September placements were 2.9% less year over year and about 4% less than expected. More speci-fically, Peel pointed out there were 1.2% fewer cattle placed on feed weighing less than 600 lbs. and 5.3% fewer weighing more than 800 lbs.
    “The implication is that, while it is taking longer than expected to turn the corner on tighter feedlot numbers, the change may be relatively sudden and dramatic when it does arrive,” Peel explained.
    Negotiated cash fed cattle prices are suggesting as much. They finally moved beyond their months-long rut to gain about $4/cwt. on a live basis ($130/cwt.) the first week in November. Cattle futures pointed to fewer cattle numbers and higher prices ahead.
    USDA’s Economic Research Service (ERS) projected the annual average fed steer price for next year at $128.75, compared to this year’s expected average of $121.06, in the October World Agricul-tural Supply and Demand Estimates (WASDE). Average prices next year are forecast at $130.00 in the first quarter, $128 in the second and $126.00 in the third quarter.
    ERS increased the projected annual average feeder steer price for next year by 50¢ to $155.50/cwt., based on expectations of tighter feeder cattle supplies in the second half of the year. That was in the October Livestock, Dairy and Poultry Outlook. Prices are forecast to average $153.00 in the first quarter, $151 in the second quarter and $156.00 in the third quarter.
Lingering drought
 could shift markets
    Although cattle numbers will decline cyclically, the ongoing drought in parts of the nation could continue to alter some marketing patterns, especially depending on the level of herd liquidation.
    “The cow herd is in contraction mode this year as the drought and tough economic factors have made ranchers think of ways to keep the cow herd together,” according to analysts with the Agricultural Marketing Service, in October. “Preliminary data from NASS puts the beef cow slaughter rate at around 9% more than a year ago and near 20% more than the previous five-year average. Heifer slaughter is 4.3% more than last year and 10.7% more than the previous five-year average.”
    “Although there have been some regional changes in the drought situation, the overall picture has not changed much,” Peel explained, as Novem-ber began. “The country started this growing season with the worst average pasture and range conditions on record and is ending the year in the same condition. The reemerging La Niña increases the chances for moisture in the northern half of the country and Canada but simultaneously increases the odds of drier conditions redeveloping in the Southwest. In any event, not much will change regarding forage supplies in the next six to seven months.”
    Elliott Dennis, Exten-sion livestock economist at the University of Nebras-ka-Lincoln points out re-newed La Niña conditions will pressure grass and hay prices even higher.
    “While the incentives to retain cattle and put on additional weight appear to be present this year in some locations, producers must calculate their operations’ value and cost of gain to determine if it is a correct decision,” Dennis explain-ed, in a recent issue of In the Cattle Markets from the Livestock Marketing Information Center (LM IC). “Using some form of risk management could be appropriate given the assumptions about volatility and price uncertainty.”
    Besides a higher price floor beneath forage, the WASDE projected the season-average corn price at $5.45/bu. significantly higher than last year.
Beef demand showing signs of wear
    Along with feed costs, Dennis said beef demand could take the shine off price trends that currently appear conducive to owning cattle for longer this fall.
    Beef and pork demand indexes reflected strength in the second quarter but weakened during the summer months as rising wholesale beef prices started to dampen retail enthusiasm, according to LMIC, in a recent Livestock Monitor.
    “The third-quarter all-fresh beef demand index fell from 124 last year to 121 this year, but 2021 was the second highest level behind 2020,” according to LMIC analysts. “The pork demand index for the third quarter posted a significant reduction falling from 124 last year (a record) to 100…Record retail price levels will likely be a headwind to demand in the near term, but meat demand indexes are still showing relatively strong levels.”
    Retail prices in Septem-ber were record high for beef, pork and broilers. According to LMIC, the all-fresh beef retail price was 17.8% more year over year in September at $7.40/lb. Retail pork prices were 16.4% higher at $4.72/lb. and the broiler composite price was 8.0% higher at $2.16/lb.
    The September Consumer Price Index (CPI) was 5.4% more year over year.
    “In the domestic market, advanced purchases of wholesale beef from retail stores have started to slow, indicating that perhaps domestic retailers are more willing to live in the cash market and then adjust featured products in the short run. This is perhaps one of the first signs that the price of beef is just too high for retailers to take any longer,” Dennis explained.
U.S. beef exports
 maintain pace
    Although Dennis said there were also early signs of slowing international demand for U.S. beef, exports through Septem-ber were record high.
    Beef exports posted one of the best months on record in September, with value climbing nearly 59% above last year at $954.1 million, the second highest monthly total on record, according to data released by USDA and compiled by the U.S. Meat Export Federation.  Volume for the month was 20% higher than a year earlier at 123,628 metric tons (mt), the fourth largest on record.
    September beef export value equated to $447.46 per head of fed slaughter, up 63% from a year ago.
    Through the first three quarters of 2021, beef exports increased 18% from a year ago to 1.08 million mt, valued at $7.58 billion – up more than $2 billion (36%) from the same period last year. Compared to the record year of 2018, January-September ex-ports were 7% higher in volume and up 24% in value. For January through September, U.S. beef ex-port value averaged $389.08 per head (up 32%).

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