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Weighing the market-March 17, 2023

published: March 17th 2023
by: Wes Ishmael
source: Southern Livestock Standard

Calf prices surge higher

 

Higher cash and cattle futures prices through the first two weeks of March underscore declining cattle numbers and beef production.

 

Month-to-month on March 9, the CME Feeder Cattle Index was $5.73 higher at $188.82. Much of that gain came in the preceding two weeks.

 

“First-quarter prices are certainly higher than we had forecast, and it remains to be seen if they will suffer a sharp adjustment ahead of summer,” explained analysts with the Livestock Marketing Information Center (LMIC) in that organization’s March 10 Livestock Monitor. Feeder cattle prices, too, are charging full steam ahead, and the board is pricing in a much lower corn price in December than current cash prices.”

 

At the time LMIC analysts noted steers weighing 500-600 lbs. the previous week had sold for $250/cwt. in Montana, $242 in South Dakota and at a combined auction average of $226 in Texas, the highest price of the year.

 

“The decrease in cattle numbers since the 2018 peak calf crop has finally worked through the system,” said Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his early-March market comments. “Cattle slaughter and beef production are expected to decrease for the balance of 2023 and beyond. With continuing drought conditions, it is not clear exactly how cattle and beef market timing will develop going forward, but the question is not one of whether beef production will fall, but rather how fast and how much it will fall in 2023.”

 

Peel used Oklahoma auction prices to provide perspective on recent price gains. He explained the average Oklahoma auction price the first week of March for steers weighing 500 pounds was $239.66/cwt., the highest since September 2015. The average price for feeder steers weighing 825 pounds was $181, the highest since October 2015. The five-area direct fed steer price was $165.09, the highest since April 2015.

 

“Cattle prices are expected to continue trending higher in 2023 and new record cattle prices will happen, if not in 2023, at some point in the next two or three years,” Peel said. “Higher cattle prices will push wholesale and retail beef prices against beef demand, which remains strong but somewhat muted currently. There will be resistance to higher beef prices, but the reality of decreasing beef supplies will ultimately push beef prices higher.”

 

USDA’s Outlook

 

For perspective, USDA Agricultural Projections to 2032, released in mid-February, suggest average cattle prices will peak this year in the near term.

 

USDA projects Feeder steer prices (750-800 lbs., Oklahoma City) to peak this year at $200.75/cwt., then decline to $174.53 in 2026. Forecast prices increase for the remainder of the projection period to $191.32 in 2032.

 

Projected fed steer prices (five-area direct weighted average) follow a similar pattern with a peak this year at $153.50, declining to $137.82 in 2026 and then increasing gradually to $148.73 in 2032.

 

“As producers respond to higher cattle prices, U.S. cattle inventories are expected to expand in 2025, and cattle prices are projected to decline through 2026,” USDA analysts explain. “For the remainder of the period, steer prices are expected to gradually rise reflecting strong global demand for U.S. beef and relatively tight supplies for the domestic market.”

 

That’s with USDA estimating the beef cow inventory reaching the low point in 2024 at 28.7 million head and then growing gradually to 31.3 million head in 2032. The total cow inventory is forecast to ebb at 38.1 million head in 2023 and then grow gradually to 40.8 million head in 2032.

 

Beef production is expected to decline this year and next, reflecting tighter cattle supplies.

 

In the meantime, USDA's Economic Research Service (ERS) left the projected annual average feeder steer price for this year unchanged at $203/cwt., in the February Livestock, Dairy and Poultry Outlook. That was based on current price strength and narrowing supplies, as indicated in the January Cattle report.

 

Average feeder steer prices (750-800 lbs., Oklahoma City) were forecast to be $182/cwt. in the first quarter, $192 in the second quarter, $214 in the third quarter and $224 in the fourth quarter.

 

In the March, World Agricultural Supply and Demand Estimates, USDA projected the annual five-area direct weighted average fed steer price for this year at $162/cwt., which was $3 more than the previous estimate. Prices were forecast to be $161 in the first quarter, $163 in the second quarter, $159 in the third quarter and $164 in the fourth quarter.

 

USDA estimated beef production for this year at 26.7 billion pounds, which was 170 million pounds more than the previous estimate. It would be 1.62 billion pounds less (-5.7%) than last year.

 

“Slaughter projections are raised through the first three quarters of the year on higher cow slaughter and increased placements of cattle in feedlots in the first quarter of 2023, which will likely be marketed in the third quarter,” according to ERS analysts.

 

 

U.S. Beef Exports Falter

 

U.S. beef exports are off to a slower start than the last two record-breaking years, according to data released by USDA and compiled by the U.S. Meat Export Federation (USMEF). January volume fell 15% year-over-year to 100,942 metric tons (mt) valued at $702.3 million (down 32%). January beef exports equated to $331.27 per head of fed slaughter, down 34% from a year ago.

 

Beef inventories swelled in some key markets near the end of last year, contributing to a challenging environment for U.S. beef, according to USMEF.

 

January beef exports were down substantially in most Asian destinations compared to the large year-ago totals. The decline was especially sharp in South Korea, where volume dipped 36% to 18,896 mt and value fell 52% to $151.5 million.

 

However, U.S. beef export shipments increased sharply to Mexico, the Dominican Republic, the Philippines and Africa.

 

“While beef exports are off to a slow start in 2023, we remain optimistic that post-COVID foodservice demand will strengthen in additional markets as the year progresses,” explains Dan Halstrom, USMEF president and CEO.