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High Cow Harvest Rates Affecting Market Prices

published: January 3rd 2011
by: Stu Ellis
source: University of Illinois Extension

Here is a puzzle for you. Take a large number of Canadian cattle entering the US. Add in a dismal wheat crop that provides poor winter pasture. Blend that with $5.50 corn prices. Can you find anyone smiling in this picture?

Ironically, the scenario is not as bad as those facts would seem. What is missing in that picture is the fact that lightweight feeder calves entering feedlots have been selling at a respectable price, says USDA livestock economist Rachel Johnson. Her December Livestock report from USDA’s Economics Research Service says cow slaughter continues to exceed the rate of last year, and is currently 4% above December 2009. Certainly, some of the volume comes from US beef herds, but Canadian cows have also contributed to the slaughter rate.

Johnson says feeder calves declined in number by 4% over the past year, and that is substantiated by the lower number of calves entering feedlots. However, there are 21% fewer calves wandering in pastures currently, a result of the increased number of beef cows being slaughtered. Johnson says 2011 is going to bring fewer feedlot placements and further, those placements will be at lighter weights than in the past two years. She says, “At some point in 2011, the tight supplies of feeder cattle should begin to adversely affect placements and subsequent marketings of fed steers and heifers.”

The bottom line is that fed cattle prices have held up, says Johnson, helped by the value of by-products to packer margins, allowing packers to buy more cattle. Those values for hides, hearts, and other byproducts are at levels unseen in nearly 3 years. Additionally, the strength of the wholesale beef market has followed the strong retail market, and that has been helped by relatively high prices for pork and poultry.

Part of the strong price for beef can be attributed to the export market and the demand seen from Japan and Korea. But exports are 19% above 2009 levels and October recorded more beef exports than imports. Through the month of October, beef exports reached 91% of the level that was recorded prior to the 2003 BSE issue. In addition to the Oriental demand, USDA says Egypt and Russia have also been buyers. Johnson says 2011 should bring a 2.3 billion pound export market, about the same as 2010, projected at 2.36 billion. However 2010 beef imports are project at 2.5 billion, up 4% from last year, and a function of the stronger dollar.

Where do the imported cattle come from? Johnson says the bulk of the increase is a 31% increase from Mexico and a 61% increase from Canada. The past three months are traditionally top import months for cattle from those neighbors. But Johnson says, “The expected smaller North American cattle inventory in 2011 will likely result in decreased numbers of cattle traded; 2011 imports are forecast at 2.1 million head, a 9% decline from this year.”

Elsewhere in the meat case:

1) High U.S. pork prices likely have caused foreign buyers to back away from U.S. pork products. Record-high retail prices and competitive chicken prices on the domestic side, lower than expected export demand, and slightly higher production may be weighing on wholesale pork prices. Hog prices next year are likely to average $53-$57 per cwt, less than 1 percent below the estimated average annual price for 2010.

2) Broiler meat production continues to rise, and has increased for most months in 2010. USDA says weights have continued to increase and that is expected to continue. Higher corn prices expected next year and a weak price for broiler productions are expected to scale back production in the coming year. Stocks remain high, but will be drawn down.

Summary:
Beef production continues downward and prices remain strong, due to high volumes of cow slaughter and fewer calves entering and ready to enter feedlots. The scenario will continue to support beef prices, along with high demand for beef by-products, and reasonable strong demand from Oriental markets. US beef exports are back to 91% of pre-BSE levels. Pork prices have been too high for some export buyers and are expected to soften in the coming year. Poultry production continues to rise and producers are expected to reduce production from high feed costs.