A combination of long-term feed price movement and recent stormy winter weather have combined to ignite record-high cattle and beef prices, and between those factors, a lag in cow slaughter and a strong export market have the market on bullish footing heading into the latter half of winter, according to a USDA report released this week.
"Winter storms and holidays have recently disrupted flows of cattle from feedlots to packers and have resulted in rapidly rising fed cattle and beef prices. Cow slaughter in 2013 potentially set the stage for an expected further decline in total cow inventories on January 1, 2014," according to the USDA-ERS January Livestock, Dairy and Poultry Outlook released Thursday. "The 2013 estimate for U.S. cattle imports was raised to 1.99 million head due to stronger imports in the fourth quarter. U.S. beef exports are up 4% this year through November and are estimated at 2.534 billion pounds in 2013. U.S. beef imports have risen 1% in 2013 and are forecast to increase marginally in 2014."
Cow slaughter in 2013 has a lot to do with today's high cattle and beef prices. Though earlier expectations were for that slaughter to slide through 2013, it remained on trend with the preceding 3 years. The result: A smaller breeding herd that translated into a smaller beef herd overall.
"Despite the likelihood of almost a 3-percent year-over-year decline in total 2013 commercial cow slaughter, the rate of total cow slaughter appears to have continued throughout 2013, matching the high rates of 2010, 2011 and 2012. The high cow slaughter rates led to declines in cow inventories and the expectation of continuing declines in January 1, 2014, cow inventory," according to USDA's report. "Total annual commercial cow slaughter has exceeded 15% of January 1 total cow inventories in 11 of the years since 1980.
"The dynamics are different for beef and dairy cows. Consistent with total cow slaughter, commercial beef cow slaughter is on track for 2013 to be the 6th consecutive year for commercial beef cow slaughter to exceed 10% of January 1 beef cow inventories," the report adds.
These factors, combined with the fact that dressed weights for all cattle are expected to remain high this year, and corn is seen to linger at relatively cheaper levels than a year or so ago, have dressed beef prices expected to continue strong, though some uncertainty may ease into the fed cattle market.
"Breakeven prices in the Southern Plains are projected to fall below $130 per cwt at least through April, after which weather markets will likely introduce some uncertainty. While fed cattle prices remain at or above $130 per cwt, cattle feeding margins should continue to be positive. As we discussed in last month's write-up, dressed weights for all cattle could average higher in 2014 than they were in 2013 for several reasons," according to USDA. "Lower priced corn will provide incentives for keeping cattle on feed longer, increasing dressed weights. More steers and fewer cows and heifers in the slaughter mix could also result in a tendency for dressed weights to be higher. However, pulling cattle forward -- placing them in feedlots at younger ages and lighter weights due to anticipated lower numbers of available feeder cattle and because of a positive relationship between placement weight and final weight -- could mitigate the weight-increasing effects of lower feed prices and more steers in the slaughter mix."
