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Weighing the market Oct. 14, 2022

published: October 14th 2022
by: Wes Ishmael
source: Southern Livestock Standard

Cattle supplies are declining, and prices will ultimately move significantly higher, but current global economic uncertainty and nose-bleed high feed costs are stalling price increases.


“The lack of available grazing and a low hay supply is likely to bring cattle to market a few weeks early as many producers are facing conditions that may force them to begin feeding hay earlier than is typical,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments. “The price of freshly weaned calves has been declining the past several weeks and will likely continue to decline through the month of October. The driver of lower prices is not simply the seasonal tendency due to the seasonal increase in supply. Higher feed prices and increased concern of the general economy have many folks concerned about the consumers ability to purchase beef, which has resulted in a softening of price expectations for calves and feeder cattle moving through the spring months.”


For perspective, from Sept. 7 to Oct. 7, January Feeder Cattle futures declined $9.750 to 176.600. April Feeder Cattle were $9.075 less at $182.375. The CME Feeder Cattle Index was down $4.22 at $174.92/ cwt.


During the same period, December Live Cattle futures declined $2.025 to $148.050. April Live Cattle were $2.35 less at $155.775. The CME Boxed Beef Index was down $13.26 at $239.51/cwt.


Although declining cattle supplies ahead will support prices, Griffith explains continuing high feed costs and lower cash fed cattle prices than previously suggested by Cattle futures pose headwinds.


“If feed costs continue to maintain current price levels and finished cattle prices do not increase considerably then cattle feeders will be forced to continue leaning on lower feeder cattle prices,” Griffith says. “There should be some positive price movement closer to the end of the year, but prices are unlikely to make a large move through the month of October and early November.”


U.S. beef exports continue record pace


Despite the number of logistical and economic challenges, U.S. beef exports continue to provide record-high support to the domestic cattle market.


U.S. beef export value topped $1 billion in August for the seventh time this year, according to data released by USDA and compiled by the U.S. Meat Export Federation (USMEF).


August beef exports totaled 133,832 metric tons (mt), up 1% year over year and the second largest volume on record. Export value was just under $1.04 billion, slightly below the then-record total achieved in August 2021, which was the first time monthly exports topped the $1 billion mark.


“We speak often about the importance of developing a wide range of markets for U.S. red meat, and the August export results are a great illustration of that,” says USMEF President and CEO Dan Halstrom. “Exports face significant headwinds in some key destinations, with weakened currencies topping the list. But the emphasis on broad-based growth really pays dividends in these situations, allowing the overall export picture to remain very positive. I also cannot say enough about the loyalty of our international customers, many of whom have diminished purchasing power but continue to show a strong preference for U.S. red meat.”


For the first eight months of 2022, beef exports increased 5% from a year ago to 1.004 million mt, valued at $8.23 billion – a remarkable 24% above last year’s record pace. August beef export value equated to $437.98 per head of fed slaughter, down 7% from a year ago, but the January-August average was up 23% to $471.18.


Declining beef production ahead


“Both feedlot inventories and cattle slaughter have remained stubbornly high this year due to drought-forced movement of cattle out of the country. Total fed cattle slaughter thus far in 2022 is up 0.8% as the 1.7% decrease in steer slaughter for the year to date is offset by a 4.9% increase in heifer slaughter,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his early-October weekly market comments. “Total cow slaughter is up 5.6% so far this year, driven by a 13.4% increase year over year in beef cow slaughter. Total cattle slaughter is up 1.8% year over year thus far in 2022, with female (cow plus heifer slaughter) accounting for 50.9% of total cattle this year. Cattle slaughter and beef production are projected to decrease year over year in the fourth quarter but higher than expected beef production in the first three quarters of the year likely mean that annual totals for beef production will be steady or fractionally higher year over year. Feedlot production, cattle slaughter and beef production are all expected to decrease sharply in 2023.”


Referencing the September Cattle on Feed report, Peel explains, feedlot inventories grow seasonally in the fall but are expected to increase less this year and trail last year’s record levels.


“In the past four months — May – August — total placements were down 0.6% year over year with placements under 700 lbs. up 5.3% and placements over 700 lbs. down 3.7% compared to last year. Past placements of lightweight cattle suggest fewer cattle available for placement going forward,” Peel says.


Feed costs stall price run

As the last leg of the current cattle cycle unfolds, with herd contraction since 2018-19, Josh Maples, Extension livestock economist at Mississippi State University, offers insights to the likely cyclically high prices ahead and the trigger for expansion.


“How long we continue to contract will be directly impacted by drought and pasture conditions. The current drought draws comparisons to the 2011-13 and has led to similar liquidation impacts on the cattle inventory. Herd expansion will be difficult until the drought abates,” Maples explains in Cattle Market Notes Weekly.


“Producer profitability will be the key driver of when the next expansion phase occurs and when the next cattle cycle begins.”


Maples offers 2014-15 as an example. Record high prices were achieved during the last cycle low for cattle numbers, which was driven by drought and seven years of herd contraction.


“Just a few years ago, the thought of reaching those record price levels again seemed far-fetched. However, we are again experiencing many of the same ingredients that led to the 2014-15 market,” Maples says. “Cattle futures markets for 2023 are at levels not seen since 2015. The timing is still up in the air, and beef demand will certainly matter, but the end of the current cattle cycle may ultimately not look all that different from the end of the last one.”


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