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Weighing the Market-Nov. 11, 2022

published: November 11th 2022
by: Wes Ishmael
source: Southern Livestock Standard


Mixed market signals


As long as consumer beef demand holds up, dwindling cattle numbers suggest cattle price trajectory remains higher over the next several years.


“Market fundamentals are generally positive for cattle markets going forward,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his early-November weekly market comments. “Improved futures prices, stronger boxed beef and fed cattle prices are all supportive for feeder cattle markets. Cattle slaughter is still running large but should taper off toward the end of the year. Unless unexpected external market pressure develops, cattle prices are expected to finish the year strong and the highest prices of the year may be recorded before the end of the year.”


Peel offers Oklahoma auction volume as an example of how drought altered cattle marketing. Across 14 weeks from mid-July to mid-October he notes the volume of feeder cattle flowing through auction markets in the state was 19.7% more year over year. The last two weeks, feeder auction volume was 6.1% less than the same period last year.


“Feeder cattle prices at Oklahoma auctions increased counter-seasonally through the summer to August peaks, nearly equal to the spring seasonal peaks before dropping through September into early October,” Peel says. “A sharp decrease in Feeder futures contract prices over this period was the major factor in the cash market decrease. Since mid-October, Feeder futures prices and cash auction prices have moved higher.”


Cow liquidation continues


Ongoing widespread drought keeps pushing more beef cows and heifers to town, though recent widespread rains offered hopes for late-season forage growth in some areas.


Through the first week of October, female beef cattle slaughter was approaching 750,000 head more than last year, according to the Livestock Marketing Information Center (LMIC). Beef cow slaughter was 336,000 head more and heifer slaughter was up 364,000 head.


“Given the pace of current slaughter, a reasonable estimate would conclude U.S. female slaughter will be over 800,000 head by the end of the year,” LMIC analysts say, in the latest Livestock Monitor. “Using a simple regression analysis of data back to 1987, that would imply a Jan. 1 beef cow herd number down 4.8%, greater than the largest decline seen in the 2011-2015 time period. The difference has been the larger number of heifers moving through slaughter channels. It would suggest an unprecedented proportion of female slaughter in the last several decades relative to herd inventory.”


Even so, there are indications the price run may be more subdued than during the 2014-15 period many use for comparison to looming markets.


“Thinking from the margin perspective, finished cattle prices are at their highest level since 2015, which would initially make a person think feeder cattle prices should be keeping pace,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his early-November market comments. “Today’s CME feeder cattle index is equivalent to late November 2015 but $15/cwt. lower than early November 2015. The point is that it will be difficult for cattle feeders to bid feeder cattle to equivalent levels as 2014 and 2015 when compared to the live cattle price, because all other input prices are much higher today than they were seven to eight years ago.”


Shorter term, despite firm feedlot demand expected for the remainder of this year, between current price data and higher projected feed prices than in last month’s forecast, USDA’s Economic Research Service (ERS) lowered the fourth-quarter price projection for feeder steers $4 to $173/cwt. with an annual average price of $164.93. That’s basis 750-800 lbs. steers selling at Oklahoma City.


“Based on a weaker outlook than last month for winter grazing on small grains, expected feeder calf placements were raised for the remainder of 2022, tempering expectations for supplies of stocker cattle entering feedlots in early 2023,” ERS analysts say, in the October Livestock, Dairy and Poultry Outlook. “The price projection in first-quarter 2023 is raised $3 to $175. However, feed prices are forecast to be slightly higher for the 2022-23 crop year and expected feeder calf price increases in the second half of the year were moderated.”


ERS projects feeder steer prices next year at $190 in the second quarter, $214 in the third quarter with an annual average price of $200.75.


Beef exports show signs of slowing


September beef exports were lower year over year — the first monthly decline in 2022 — below last year but exports remain on a record pace through the first three quarters of the year, according to data released by USDA and compiled by the U.S. Meat Export Federation (USMEF).


September beef exports totaled 115,487 metric tons (mt), valued at $890.3 million, down 7% from a year ago in both volume and value. For the first nine months of 2022, beef exports were still 4% above last year at 1.12 million mt. Export value reached $9.12 billion, up 20% and already achieving the second highest total for any calendar year, trailing only the 2021 record ($10.58 billion).


Despite China’s zero-COVID policies that result in travel restrictions and periodic lockdowns in metropolitan areas, September beef exports to China/Hong Kong were still above last year. Shipments also increased year-over-year to the ASEAN region and Caribbean, but declined to Korea, Japan and Taiwan.


While beef exports remain well-positioned to reach new heights in 2022, the September results reflected significant headwinds that have been building for some time.


“Demand for U.S. beef has been extremely resilient, but inflationary pressure on consumers and weakened currencies in key markets have definitely created a more challenging environment,” Halstrom says. “Exports also continue to face logistical challenges, lockdowns in China and mounting inventories in some destinations. Still, it’s hard to view September sales of nearly $900 million as a disappointment, when this would have been an all-time record just 18 months ago. That really drives home what a remarkable year this has been for U.S. beef exports.”



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