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Weighing the Market-May 12,2023

published: May 14th 2023
by: Wes Ishmael
source: Southern Livestock Standard

Fed cattle prices set record

 

Supply and demand fundamentals were on full display last month.

Fed steer prices — weekly weighted average five-area direct — surged to a record high $173.10/cwt. the week ending April 10 and remained above the previous record of a little more than $171 through the week ending May 1, reaching a high of $180.44.

Estimated year-to-date total cattle slaughter through the week ending May 5 of 11.3 million head was 384,000 head fewer (-3.3%) than a year earlier. Year-to-date estimated beef production of 9.3 billion pounds was 477.6 million pounds less (-4.9%) than the same time last year.

Historically high fed cattle prices are unlikely to fade as much as seasonal trends indicate, says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University.

“In a steady market, fed prices would typically peak seasonally about now and move lower through the third quarter before increasing to the end of the year,” Peel explained, in his mid-April weekly market comments. However, Peel noted the strong uptrend in fed cattle prices in 2021 and 2022 offset seasonal trends.

“There is good reason to expect the uptrend to continue in 2023. The seasonality priced into the markets now may fade as markets trend higher going forward,” he said. “Feedlot inventories are just beginning to fall with ever tighter feeder cattle supplies and are likely to continue decreasing at least through 2023, pushing fed prices higher. Fed prices may increase more slowly or plateau briefly in the summer months but are not likely to have a typical seasonal decline going forward.”   

In the April World Agricultural Supply and Demand Estimates, USDA’s Economic Research Service (ERS) projected the weighted average five-area direct fed steer price $6 higher in the second quarter and $3 higher in the third and fourth quarters: $169/cwt. in the second, $214 in the third and $224 in the fourth quarter. The average annual price was projected to be $164.50, about 14% more year over year.

Although recent weekly cash fed cattle prices eclipsed the previous highs, Elliott Dennis, Extension livestock economist at the University of Nebraska-Lincoln points out real prices for feeder and fed cattle — adjusted for inflation —remain less than the peaks in 2013-2015.

“The significant rise in cattle prices along the supply chain has been encouraging. But, as in every year, higher prices are nice but wide profit margins are better,” Dennis explains, in the early-May issue of In the Cattle Markets.

“Previous studies have found that interest rates reduce feeder cattle prices. On average, a 1% increase in the interest rates would decrease feeder cattle prices by 1.14% (Marsh 2001),” Dennis says. “Ultimately, higher interest rates squeeze profit margins and producers will seek to reduce these impacts.”

 

Calf and feeder prices higher

In the April Livestock, Dairy and Poultry Outlook, ERS increased the projected second-quarter feeder steer price (750-800 pounds, Oklahoma City) by $6/cwt. to $199, based on recent price data. ERS forecast prices at $214 in the third quarter and $224 in the fourth quarter for an annual average of $205.12, which would be about $37 higher year over year.

Feed prices are projected to moderate along the way.

 

The Livestock Marketing Information Center (LMIC) estimated the season average 2023/2024 corn price at $5.45 per bushel, in an early-April Livestock Monitor. They estimated the season average price for 2022/2023 at $6.95 per bushel.

As for hay, USDA-estimated acres in the Prospective Plantings report were slightly lower than LMIC projections.

“Original forecasts were for a 3% increase in hay acres, driven by other hay. Forecasts were revised to a 2.4% increase for the 2023/2024 marketing year,” LMIC analysts say. “Prices remain elevated and continue to be tweaked as we enter the tail end of the 2022/2023 marketing year. Alfalfa prices are projected at $270 per ton nationally this year and $235 per ton next year. Other hay prices are estimated at $170 per ton this year and $155 per ton next year.”

 

Consumer beef demand remains resilient

Higher beef prices currently stem from strong consumer demand, as well as declining beef production.

In his mid-April market comments, Peel pointed out carcass weights were lighter year over year for all classes of cattle. At the time, he explained steer carcass weights averaged 14.7 pounds lighter, heifer carcasses averaged 19.2 pounds lighter and cow carcass were 11.6 pounds lighter.

            At the same time, Peel said consumer beef buying behavior appeared to be relatively static in the face of high retail beef prices.

For price perspective, Peel explained all fresh retail beef prices were $7.23 per pound in February, down 1.8% year over year.

“Retail beef prices have been mostly steady since late 2021. The 12-month moving average of monthly retail beef prices has been above $7.25/lb. since April 2022,” Peel explained. “This indicates strong beef demand given record beef production in 2022 and the highest beef consumption per capita at 58.9 pounds (unchanged from 2021) since 2010. Retail all fresh beef prices averaged $7.30/lb. in 2022, the highest on record and up 5.1% over 2021 average retail prices. The highest monthly price ever was in October 2021 at $7.55/lb.” 

Peel noted middle meats continued to lead wholesale beef prices higher with tenderloins and ribeyes 12-15% higher year over year.

“Both 90% and 50% lean beef trimmings have advanced significantly thus far in 2023, pushing ground beef prices higher. Higher ground beef prices are probably partly due to stronger demand but are mostly due to decreasing supplies of processing beef,” Peel said.

In terms of international demand, U.S. beef exports in March showed signs of recovery from weakness during the last several months, according to data released by USDA and compiled by the U.S. Meat Export Federation (USMEF). However, volume and value remained less than last year’s record pace.

Beef exports volume was 120,495 metric tons in March, down 5% from a year ago. Export value fell 17% to $892.6 million, but both volume and value were the highest in five months. Through the first quarter, beef exports were down 8% year-over-year to 326,494 mt, valued at $2.35 billion (down 22%).

March beef export value per head of fed slaughter was 16% less than last year at $397.22. Value per head of fed slaughter through the first quarter was $373.42, which was 21% less year over year.

“U.S. beef exports faced considerable headwinds late last year and at the beginning of 2023, but the March results show some encouraging trends,” says Dan Halstrom, USMEF president and CEO. “Most Asian markets showed renewed momentum in March, while exports continued to trend higher to Mexico, the Caribbean and South Africa.”