Beef market stabilizes

David Reese photo, Montana Living

Beef cow numbers up 3% for United States and Canada

Calves and stocker-weight cattle traded mostly steady to firm with instances of $5 per cwt higher this week, according to the Agricultural Marketing Service (AMS).

The recent surge of cattle trading off wheat pasture limited gains for yearlings. Yearling feeder cattle weighing more than 800 pounds sold unevenly steady from $3 higher to as much as $4 lower.

“Trading remains most active on 500-750-pound old-crop stocker cattle and hard, lightweight calves mostly throughout the Southeast,” AMS analysts say. “Most top- quality, long-time weaned steers weighing 600 pounds, in lightly-fleshed condition and suitable for grass, are yielding prices well north of $180 per cwt. Many 500-pound steer calves are selling well over $200 per cwt near the major grazing regions.”

Feeder Cattle futures were an average of $3.85 higher week to week.

Strengthening outside markets—including late-week speculation that the bottom might be in for oil—continued to support cash markets.

The Dow Jones Industrial Average was 206 points higher week to week. The broader S&P 500 was up 22 points, closing back above 2000 for the first time since the beginning of the year.

On the other side of the scale, wholesale beef values continued to gain ground.

Choice boxed beef cutout value was $3.08 higher week to week at $224.05 per cwt. Friday afternoon. Select was $3.13 higher at $215.12.

There was moderate cash fed cattle trade on good demand in Nebraska and Iowa-Minnesota through Friday afternoon. Dressed sales in these regions brought $6 more than the previous week at $220 per cwt. Elsewhere, trade was shaping up to be a late-day, weekend affair.

Live Cattle futures closed an average of $1.34 higher week to week across a broad range ($3.45 higher in spot Apr to 52¢ higher).

“One concern remains the disconnect of the June Live Cattle contract compared to April, with the spread of a little more than $11 reflecting some concern of ample supplies coming later,” AMS analysts say.

“While the down trends (futures) have been broken and support established,suggesting a firming up of market prices, resistance is also in place to limit up moves,” cautions Stephen Koontz, agricultural economist at Colorado State University, in the latest In the Cattle Markets. “Live cattle attract a lot of selling interest at $128-130 and feeder cattle at $160-165. I think we’ll have reasons to trade higher in that range—with greening spring grass—and reasons to trade lower in that range—with demand issues and seasonal increases in supply come summer, and we’ll trade that range until the underlying fundamentals change.”

In other words, Koontz isn’t counting on much of a spring rally.

For one thing, he points out that carcass weights continue higher.

“Although marketing rates are increasing, according to the Kansas State University Focus on Feedlots report, steers are staying on feed longer and coming out at heavier weights,” say analysts with the Livestock Marketing Information Center (LMIC), in the latest Livestock Monitor. “Compared to January 2015, steers were on feed 11 days longer on average and came out of the pens 45 pounds heavier (live weight). Average daily gain remains at year-ago rates, however the cost of feed has come down $6.50 per cwt compared to January 2015 at $81.87 per cwt for steers. Coupling the decreased feeding costs with absent or low discounts from the packer for heavyweight cattle, there is no current incentive for the feeder to reverse the long-term trend of producing heavier cattle.”  

Then there’s demand.
 
“The beef demand index, updated with fourth quarter consumption data, showed its first softening in six years,” Koontz explains. “Domestic consumers appear tired of record high retail beef prices. Beef demand has shown strong growth over the past several years, especially in the fourth quarter of 2014 and first quarter of 2015. This demand kick added strength to already-high prices reflecting tight supplies and herd building.”

“Producers should be, now more than ever, investing time and effort to monitor markets carefully and objectively to ensure successful decision-making,” says Nevil Speer, BEEF market analysts, in his latest outlook. “That said, it’s also important to remember that change and challenges also mean new opportunities—the innovators will be rewarded appropriately.”

U.S. beef exports gained some traction in January—3% more than the previous year—but the value of those exports was 13% less year to year, according to the U.S. Meat Export Federation (USMEF) this week.

More specifically, beef exports increased to most Asian markets in January, but the gains were mostly offset by fewer exports to Western Hemisphere markets and the Middle East. That includes the least volume of beef shipped to Mexico in almost three years, due to the weakened peso.

“Although it is encouraging to see beef exports to the Asian markets performing above year-ago levels, these results are a reminder of how disruptive the West Coast situation was for our industry,” says USMEF President and CEO Philip Seng. He’s referring to the protracted dockworker labor dispute that snarled West Coast ports last year, disrupting U.S. shipments.
 
Despite lingering challenges, including barriers to market access, Seng emphasizes there are also emerging opportunities for U.S. beef.

“While we still face a tariff gap in Japan compared to Australian beef, Australia’s recent slowdown in production presents an opportunity to reclaim market share – an opportunity the U.S. industry is pursuing very aggressively,” Seng explains. “U.S. beef is also capitalizing on the tight domestic supplies in Korea, making strides in both the retail and foodservice sectors.”

January U.S. beef exports accounted for 12% of total beef production and 9% for muscle cuts only, steady with the same time a year earlier. Export value per head of fed slaughter was $239.88, down 11% from a year ago.

Although there were 4% more beef cows in the U.S. at the beginning of this year compared to last, there were slightly fewer year to year in Canada, according to the U.S. and Canadian Cattle report from USDA’s National Agricultural Statistics Service (NASS) this week.

Canada’s beef cow inventory Jan.1 was 3.8 million head, just about even with the prior year, but 1.9% less than in 2014.

The U.S. beef cow inventory began this year at 30.3 million head.

Combined, the beef cow inventory in both countries at the beginning of the year was 34.2 million head. That’s 3.1% more year to year and 3.6% more compared to 2014.

NASS reports the total combined January 1 inventory of both nations at 104 million head, 3% more than the previous year.

“It seem clear to me that expansion (U.S.) will continue in 2016 , albeit at a more moderate pace than 2015, and into 2017 as well,” explains Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his market comments this week. “At this point, it seems likely that the herd will peak cyclically at an inventory somewhere between 31 and 33 million head. The ultimate total is a moving target that must be monitored along the way. Unfortunately, that will be more difficult given USDA’s recent announcement to suspend the July Cattle report. This means that there will be no indication of the size of the 2016 calf crop; the status of heifer retention; nor the estimated feeder supply until 2017.”

As mentioned in Cattle Market Weekly last week, USDA estimates the U.S. beef cow herd increasing to 33.2 million head by 2025 (see “USDA’s 10-year projection…”).

“Ultimately, it is demand that will determine the size of the industry,” Peel says.  “Domestic and international markets will be the key to how big the beef cow herd will be. Beef carcass weights will also be important in determining how many animals are needed to meet that total market demand.”