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Weighing the Market... Cattle prices continue higher

published: February 23rd 2018
by: Wes and Sharla Ishmael
Cattle markets face plenty of headwinds, in-cluding increased beef production, but so far demand is helping lift cattle and beef prices higher than the unexpectedly stronger ones last year. 
“Demand is robust on all fronts. Domestically, retail demand is increasing and beef is being featured more in the consumer markets,” said Kevin Good, CattleFax senior analyst, at that organization’s recent Outlook Session during the 2018 Cattle Industry Convention. “The retail and foodservice industries are doing very well and the solid economy in the United States is one of the main drivers as unemployment rates continue to decline and per capita income rises.”
“In January, Choice Retail beef prices were $575.8/cwt, down from December but 1.7% above one year ago,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State Univer-sity, in his mid-February market comments. “All fresh retail beef prices were $560.4/cwt., up 2.0% year over year. This despite the fact that per capita beef consumption was up 2.4% year over year in 2017. Choice boxed beef price was $209.88/cwt. this past Friday (Feb. 16), 10.9% higher compared to one year ago; while Select boxed beef price was 9.0% higher year over year. The current Choice-Select spread is $4.76/cwt, holding a bit stronger than the typical seasonal low spread in February.”   
For January, cash calf and feeder cattle prices in the Southern Plains were $165.91-$173.20/cwt. at 500-600 lbs., compared to $146.68-$152.50 a year earlier. That’s according to the National Weekly Feeder and Stocker Cattle Sum-mary from the Agricultural Marketing Service. At 600-700 lbs., prices were $137.72-$138.89 last year compared to $158.77-$160.27 this year. There are similar year-to-year gains at 700-800 lbs. These trends remained through the first half of February.
Likewise, fed steers averaged $123.35/cwt. in January of this year (5-area Monthly), compared to $119.99 a year ago. 
With the growth in production, Good said he anticipates lower, but still profitable price levels for the cow-calf segment, while feeders and backgrounders will see their margins narrow.
CattleFax predicts fed cattle prices for this year at an average of $115/cwt. According to Good, fed cattle prices are likely to face resistance near the $130 level, with downside risk in the upper $90 range. 
“Despite higher cattle slaughter and beef production during January 2018 relative to January 2017, wholesale beef prices climbed above 2017,” say analysts with USDA’s Economic Research Ser-vice in the February Live-stock, Dairy and Poultry Outlook (LDPO). “With packer margins above 2017 in early 2018, January fed steer prices also averaged above year-earlier levels. On expectations of continued demand strength, fed steer price forecasts for the first and second quarters were raised to $122-$126/cwt. and $117-$125, respectively. Although first-quarter fed steer pri-ces are expected to average above 2017, second-quarter prices could be pressured by marketings.”
As for calves and feeders, CattleFax projected feeder steer prices (750 lbs.) to average $1 less than last year at $145/cwt., with a range from the upper $120s to $160/cwt. They estimate average steer calf (550 lbs.) prices at $158, ranging from $170 for the spring high to an average price in the upper $130s during the fall marketing season. 
Protein production higher
Now for the headwinds.
“Beef production, al-ready up over 3% so far this year, is expected to be up 4.5-5.0% for the year,” Peel says. “Increased beef production will result from increased cattle slaughter and likely higher carcass weights. Feedlots are carrying larger inventories of feedlot cattle into the year and the 2% increase in the 2017 calf crop ensures that feeder numbers will continue to grow in 2018.”
Increased late-year feedlot placements due to drought and relatively slower growth in last year’s calf crop lowered USDA’s expectations for beef production this year by 35 million lbs. to 27.7 billion lbs., in the aforementioned LDPO. That’s still 6% more than last year’s estimated production of 26.2 billion lbs., which was 3.8% more than in 2016.
“This reflects anticipation of fewer cattle to be placed in feedlots in the first half of the year and marketed in the second half, although it is largely offset by the first-half marketing of cattle placed in late-2017,” say ERS analysts.
“We have a bigger supply of all proteins ahead in 2018. For the past year we were very fortunate to have solid export volume,” Good explained. “We are forecasting trade to increase year-over-year in 2018, but still, the rate of production is out-pacing the rate of exports.”
Last year was a record breaker for U.S. beef exports, with beef export value exceeding $7 billion for only the second time, according to data released by USDA and compiled by the U.S. Meat Export Federation (USMEF).
Beef export value last year averaged $286.38 per head of fed slaughter, up 9% from 2016 and the second highest on record, trailing only the $300.36 average posted in 2014.
Herd expansion slowing
Along the way, expanding drought may put an end to herd expansion sooner than economics would otherwise suggest.
U.S. weather patterns over the next three months will be dictated by La Niña conditions, according to Art Douglas, CattleFax meteorologist and professor emeritus at Creighton University. However, at the CattleFax session, he predicted a possible transition from La Niña conditions to a weaker El Niño by summer.
There were 31.72 million beef cows to start this year, according USDA’s recent Cattle inventory report. That’s 509,800 head more (+1.63%) than Jan. 1 of 2017. The beef cow inventory increased 2.8 million head in four years, according to CattleFax. They expect another 200,000-400,000 head to be added to the herd over the next few years.
“The decrease in beef replacement heifers (3.72% less in the Cattle report) is generally taken as a sign that herd expansion is over,” Peel explained the first week of February. “That may well be, but a look at the absolute numbers suggests that a limited amount of additional beef herd expansion is possible in 2018. The Jan. 1 beef replacement heifer inventory was 19.3% of the herd inventory. This is down from record levels the past three years but it is still higher than the average level of 17.3% for the 25 years prior to the beginning of herd expansion in 2014. You have to recognize just how unusual the current herd expansion has been.”

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