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Weighing the market-Aug. 19th

published: August 19th 2022
by: Wes Ishmael

Finally, cattle markets appeared to be at or just beyond the threshold to significantly higher prices.


Between July 20 and Aug. 11, the CME Feeder Cattle Price Index — reflecting cash prices —increased $7.61 to $178.28/cwt., the highest level since November of 2015, according to Andrew P. Griffith, agricultural economist at the University of Tennessee.


“The calf market tends to soften through the summer and even more so heading into the fall when the bulk of the spring born calves hit the market. Despite the seasonal trend being lower prices, lightweight calf prices have been following yearling prices higher,” Griffith explained in his mid-August market comments. “Most classes of lightweight cattle are trading at prices just below their spring price peak and a clear $15 to $20/cwt. higher than a year ago.”


Before then, USDA’s Economic Research Service (ERS) had already increased price expectations for the annual average feeder steer price (750-800 lbs., Oklahoma City) to $163/cwt., with $168 projected for the third quarter and $171 for the fourth quarter. Next year's annual average price was forecast to be $199.25. That’s from the July Livestock, Dairy and Poultry Outlook.


During the same period, Spot Aug. Live Cattle futures climbed $4.47 to $140.22, near the contract high posted in February. The weighted average five-area direct fed steer price was $2.27 higher on a live basis at $144.39/cwt. That was during a time when many thought fed cattle prices would be floundering in heavy supplies.


In the August World Agricultural Supply and Demand Estimates (WASDE), ERS increased the expected weighted average five-area direct fed steer price for this year 80¢ to $142.10/cwt., based on price strength. Next year's projected annual price was $1 higher than the previous month's estimate at $154. Prices were estimated at $140 in the third quarter and $147 in the fourth quarter. Prices in the first and second quarter next year were projected at $151 and $152, respectively.


Beef supplies on cusp of decline


Price gains stem from the long-awaited decline in cattle numbers and beef production, in tandem with resilient consumer beef demand.


On the supply side, beef production may provide the most crystalline view of the transition. Beef production for this year was projected at 27.99 billion lbs. in the latest WASDE. That was 68 million lbs. more than the previous month's estimate, based on higher expected placements in the second half of this year. Estimated beef production next year of 26.26 billion lbs. would be 1.7 billion lbs. less (-6.2%) than this year.


Total estimated year-to-date cattle slaughter through July 12 of 20.77 million head was 246,000 head more than a year earlier. Total estimated year-to-date beef production of 17.12 billion lbs. was 171.3 million lbs. more.


Markets are wading through increased supplies pulled forward due to drought along with elevated cow slaughter. However, USDA's semiannual Cattle report published in July began painting the significant decline in cattle numbers looming on the near horizon.


There were 30.35 million beef cows in the national inventory July 1, which was 750,000 fewer (-2.4%) than the same time last year. There were 4.15 million beef heifers retained as replacements, which was 150,000 fewer (-3.5%) than a year earlier.


The 2022 calf crop was projected to be 34.6 million head, which would be 485,400 head fewer (-1.4%). The calculated number of calves outside feedlots July 1 of 35.7 million head was 1 million head fewer (-2.7%) than the same time last year.


Total cattle and calves of 98.8 million head were 2 million fewer (-2.0%) year over year.


Beef demand remains strong


“The strong international market coupled with a strong domestic demand for beef is what has kept beef prices strong,” Griffith explained. “There have certainly been questions if consumers would be willing to continue paying higher prices for beef, and the resounding response has continued to be yes … It is uncertain if the international market will continue its torrid pace through the second half of the year, but there is no reason to doubt it at this point. The only thing that may slow down exports is the reduced supply from a smaller cattle herd.”


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


June beef exports of 130,638 metric tons (mt), were 16% more year-over-year and the fourth largest on record. Export value was $1.05 billion in June, which was 31% more than last year. For the first half of 2022, beef exports increased 6% from a year ago to 743,904 mt, valued at $6.19 billion (up 33%).


“The first-half performance for U.S. beef exports was nothing short of remarkable, especially considering the growing economic headwinds in many key markets and continued shipping and logistical challenges,” says USMEF President and CEO Dan Halstrom. “The rebound in the global foodservice sector has provided a tremendous lift in 2022, even though it is still far from a full recovery in many Asian and European destinations. We definitely see opportunities for further growth, though inflationary pressure and the stronger U.S. dollar continue to raise concerns about consumer spending power.”


June beef export value averaged $447.45 per head of fed slaughter, up 27% from a year ago. Through June, per-head value averaged $476.98, up 33% from the first half of 2021. Exports accounted for 15.5% of total June beef production and 13.3% for muscle cuts, up significantly from 13.6% and 11.5%, respectively, in June 2021. First-half exports accounted for 15.4% of total production and 13.2% for muscle cuts, up from 14.7% and 12.5%, respectively.


“Beef trade has been generally supportive thus far this year, but the future is uncertain,” explained Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his early-August market comments. “Global and U.S. economic forecasts have been reduced as global economies continue to struggle. The U.S. dollar continues strong, which will be a headwind for future exports. U.S. beef production is expected to decline in the last part of the year and beyond reducing available beef supplies. All of these will likely impact beef trade going forward.”




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