CONSUMER confidence in the economy is key to the nation’s prosperity. The same holds true for the U.S. beef industry. The level of spending on beef by high income earners is also vital to beef demand. The Great Recession of 2008-2009 showed how both consumer confidence and beef spending can be negatively impacted by a severe economic downturn. Beef demand since then has been tested at times, especially when the COVID-19 pandemic and its impact on been production caused retail beef prices to hit record high levels. Prices remain close to their records because of a year-on-year reduction in beef production (down 0.7% so far this year). But analysts say beef demand has been resilient and somewhat stronger than expected.
With that in mind, the most positive news last week was that the Conference Board’s Consumer Confidence Index increased in October to 108.7 (1985=100) from 99.2 in September. The Present Situation Index, based on consumers’ assessment of current business and labor market conditions, increased by 14.2 points to 138.0. The Expectations Index, based on consumers’ short-term outlook for income, business and labor market conditions, increased by 6.3 points to 89.1, well above the threshold of 80 that usually signals a recession ahead.
Index Had Biggest Gain Since March 2021
Consumer confidence recorded the strongest monthly gain since March 2021 but still did not break free of the narrow range that has prevailed over the past two years, said Dana Peterson, Chief Economist at The Conference Board. In October’s reading, all five components of the Index improved. Consumers’ assessments of current business conditions turned positive. Views on the current availability of jobs rebounded after several months of weakness, potentially reflecting better labor market data. Compared to last month, consumers were substantially more optimistic about future business conditions and remained positive about future income. The board also noted that despite further slowing in overall inflation and declines in gas prices, average 12-month inflation expectations rose to 5.3% in October from 5.2% last month. This may reflect continued upward pressures on food and services prices, it said. Still, inflation expectations were well below the peak of 7.9% in March 2022. Mentions of prices and inflation continued to top write-in responses as topics affecting consumers’ views of the economy but more respondents mentioned slower inflation and lower grocery prices, it said.
October’s increase in confidence was broad-based across all age groups and most income groups, said the board. In terms of age, confidence rose sharpest for consumers aged 35 to 54. On a six-month moving average basis, householders aged under 35 and those earning over $100,000 remained the most confident, it said. This measurement reflects comments by Andrew Gottschalk, HedgersEdge.com, in his monthly Cattle on Feed report. While there has been no shortage of concerns expressed regarding the economic outlook, beef demand has managed to hold steady and the demand level is being supported by high income earners, he wrote.
It should be noted that the top 20% of wage earners in the U.S. account for 40% of total spending in the U.S. economy, wrote Gottschalk. It is noteworthy to recognize that consumer spending is by far the biggest driver of the economy. According to the U.S. Bureau of Economic Analysis, in the second quarter of 2024, personal consumption expenditures represented nearly 68% of the nation’s Gross Domestic Product (GDP), wrote Gottschalk. On a positive note, personal income increased 0.3% during September. Personal savings increased by $1.0 trillion and the personal savings rate as a percent of disposable personal income was 4.6% during September. Retail beef sales might have got a spark last week with it being a pay day week, he says.
OCT 1 COF IS SAME AS YEAR AGO
USDA’S latest monthly Cattle on Feed (COF) report confirms that the number of cattle in feedlots on October 1 was nearly the same as the October total last year. The total of 11.600M head was 100.0% of a year ago although it was 4000 head lower than a year ago. The total was 0.3% higher than analysts’ average forecast. Analysts regarded the report as neutral as all three categories were close to their average forecasts. The report showed that steers represented 7.00M head or 60% of the COF total, while heifers represented 4.600M head or 40%. Placements in September totaled 2.156M head, 98.1% of a year earlier. Marketings in September totaled 1.698M head, 103.0% of a year ago.
Three states, Arizona (down 9%), Kansas (down 5% and Texas (down 1%) had fewer cattle on feed than a year ago. Texas had the most cattle on feed with 2.820M head, with its total down 30,000 head from a year ago. Nebraska was second with 2.470M head, up 50,000 head, and Kansas was third with 2.370M head, down 130,000 head. Arizona, California, Idaho, Iowa, Kansas, Nebraska, Oklahoma South Dakota and Texas marketed the same number of cattle or more cattle in September than a year earlier. marketed more cattle in August than last year.
Six states placed fewer cattle than a year ago. Arizona placed 36% fewer, Colorado 5% fewer, Iowa 8% fewer, South Dakota 4% fewer, Texas 9% fewer and Washington 2% fewer. Nebraska and Kansas both placed the same number as last year. Regarding placement weights, the under 600 lb category saw 30,000 fewer cattle placed than last year (430,000 head). The 600-699 lb category saw 25,000 fewer placed (330,000 head). The 700-799 lb category saw 15,000 fewer placed (465,000 head). The 800-899 lb category saw 8000 more placed (485,000 head). The 900-999 lb category saw 15,000 more placed (305,000 head) and the 1000 lbs plus category saw 5000 more placed (90,000 head).
COF Total Will Peak This Quarter
The COF total was 117,000 head below the record high set in 2020, says Andrew Gottschalk, HedgersEdge.com. Seasonally, cattle on feed totals should peak this quarter and trend lower throughout the New Year provided orderly marketings are maintained. September placements at 2.156M head were the fourth largest since 2011 and 2000 head above the previous five-year average. October placements have exceeded those in September by an average of 77,000 head during the previous five years. September marketings were up 2% from year ago levels. But the total was 81,000 head below the previous five-year average and the fifth lowest this century for September, he says.
Front-end fed cattle supplies currently project to exceed prior year levels through the first quarter of 2025, says Gottschalk. Within this timeframe, there is however a positive trend. The projected supply in cattle on feed 150 plus days from November to April next year is projected to increase by 433,000 head. This compares with the same time frame a year ago when the increase totaled 539,000 head. But the increase this year will be above the previous five-year average increase of 382,000 head. During the previous four years, the average price advance during this period was 7.3%. Will history repeat itself? Expectations that placements going forward should decline help to bolster the likelihood of this occurring, he says.
The feeder cattle and calf supply outside feedyards is expected to continue declining going forward, as the cow inventory is expected to log another drop, says Gottschalk. The annual cow harvest in 2024 is expected to decline by approximately 877,000 head from the previous year. Additional liquidation is expected next year, albeit at a more moderate pace. The annual cow harvest next year may be challenged to drop by another 400,000 head. Mother Nature still has her hand on the throttle for possible herd expansion, he says. The cow-calf sector has benefited and profited during the past couple of years, which would normally bring an end to liquidation. But profitability may not be able to overcome adverse grazing conditions. Thus, any herd expansion is likely to be slow to develop. As such, the bull market for feeder cattle and calves is expected to continue although likely at a more subdued rate of price increases than seen over the past two years, he says.
2024 Production Will Be Up 150M Lbs
Total beef production this year will be up approximately 150M lbs from last year, says Gottschalk. Per capita domestic consumption has also increased as exports have slowed from the prior year. The expectation for next year is for the annual harvest to decline by approximately 1.5M head. Annual beef production is expected to decline approximately 1.25 billion to 25.661 billion lbs from the level generated this year. Although the drop in annual cow harvest is expected to slow from the pace of the 1.0M decline seen this year, steer and heifer harvest is expected to continue to decline. These latter two categories should comprise the bulk of the total reduction in the annual harvest next year.
The total supply of feeder cattle and calves outside feedyards continues to shrink, says Gottschalk. As such, the current liquidation cycle may extend into 2026. This cattle cycle differs from the cycle immediately prior when the total harvest collapsed by 3.7M head during 2014-2015 and beef production declined by 2.0 billion lbs. The changes in these levels during this cycle are not developing in such a condensed, constricted timeframe. Price volatility is reflecting this. As stated in prior reports, beef demand must be maintained to support current or higher fed cattle and beef prices, he says. While wages for upper income earners have outpaced inflation, the bottom tiers of income earners are struggling. Total demand inclusive of exports (expected to decline again next year), will thus be the price-limiting factor. Going forward, supply will determine the price trend. Demand in turn will set the needle at the price level, he says.
TYSON SELLS AUSTRALIAN PATTY PLANT
TYSON Foods sells its Coominya, Queensland, beef patty plant to Queensland-based beef processor, value-adder and exporter Kilcoy Global Foods The plant, which is west of Brisbane, is one of Australia’s largest dedicated beef patty manufacturing sites, says Beef Central. It produces enormous volumes of frozen patties for international and domestic end users, including major customer like McDonalds. Patties are exported to Japan, South Korea and throughout Asia as well as for use in the domestic quick service restaurant sector, cafes and retail chains. The plant is supplied with raw material by a network of large export-oriented beef processors across southern Queensland, says Beef Central.
Tyson Foods bought the Coominya plant six or seven years ago from another U.S. company, Keystone Foods, says Beef Central. Some observers believed that Tyson’s move on Coominya might signal an investment in other Australian meat processing assets but the Coominya business remained Tyson’s sole Australian meat industry asset. Tyson is said to be consolidating some of its offshore assets, hence its decision to offload the Coominya business, says Beef Central.
Meanwhile, JBS S.A. addresses recent media speculation regarding its potential acquisition of U.S. business Oscar Mayer, saying there is no binding agreement at present. JBS in a statement emphasized its routine evaluation of various business opportunities to fuel growth, although it refrained from commenting on press speculation. This comes amid reports suggesting a strategic interest from multiple parties in Oscar Mayer,
CAB HAS SECOND BEST SALES YEAR
THE renowned Certified Angus Beef (CAB) brand continues to show that it is the by far the most successful branded beef program in the world. In a year which CAB says was marked by shifting marketing dynamics and margin pressure across the supply chain, CAB closed its 2024 fiscal year with its second strongest sales year in the company’s history. With growth both domestically and internationally, the global beef brand sold 1.237 billion lbs across the U.S. and 55 other countries. The market signals from domestic and international consumers showed high quality beef is in demand both at restaurants and in the meat case, says CAB. While the total fed cattle supply declined by 1.6%, this year a record 5.96M carcasses, up 2.4% from fiscal 2023, were certified for the brand, with 37.4% of all Angus cattle meeting the brand’s strict quality standards. A record 730,000 carcasses qualified for Certified Angus Beef ® Prime.
BEEF CUTOUTS SOFTEN
DAILY beef cutout values softened last week in the spot market but might move higher again, say analysts. The week before last saw the national comprehensive boxed beef cutout (cuts, grinds and trim) averaged $315.41 per cwt. This was up $4.43 per cwt from the prior week and up $15.32 per cwt in three weeks. The comprehensive has a one-week lag with daily cutout values but was expected last week to print slightly lower than the week before. Of note was that formula sales represented 55.3% of the total volume of 7310 loads. Exports represented 1049 loads or 14.4%. This was the second consecutive week that weekly exports eclipsed 1000 loads. Forward sales represented 17.9% and spot sales represented 26.0%.
Beef cutout values should trend steady to higher, says Andrew Gottschalk, HedgersEdge.com. Beef sales at the retail level were expected to improve last week and weekend given that it was a pay day week. But turkey sales (with the Thanksgiving holiday on November 28) might begin to steal some dollars from beef as early as last week. This could cause beef cutout values to stall by mid-week. He estimated last week’s total harvest last week to be 625,000 head, as packer margins remain positive. The week before total was an estimated 623,000 head. The first four days of last week saw the Choice cutout decline $$.64 per cwt to $317.60 per cwt. It averaged $315.81 per cwt in the comprehensive report the week before last.
Live Cattle Prices Advance Again
Cash live cattle prices meanwhile continued to advance the week before last. The 5-area steer price averaged $190.05 per cwt live or $298.90 per cwt dressed, These were up $2.544 per cwt and $2.69 per cwt, respectively, from the prior week. This was their seventh weekly increase in a row since the first week of September. Prices were expected to be fully steady last week with the week before. A surprisingly early trade last Tuesday saw prices up north averaged $189-190 per cwt live or $298 per cwt dressed. A much lighter trade down south saw prices average $190 per cwt live. Trade was more active Wednesday, with prices up at north at $187-192 per cwt or $296-298 per cwt dressed. Prices down south averaged $190 per cwt live. A light trade continued Thursday at $190 per cwt live or $296 per cwt dressed.
Carcass weights meanwhile in the latest reporting week ended October 19 set new records all three categories. Heifer weights averaged 866 lbs, up 3 lbs from the week before and up 26 lbs from the same week last year. Steer weights averaged 960 lbs, up 10 lbs from the prior week and up 33 lbs from the same week last year. Overall weights averaged 869 lbs, up 3 lbs from the prior week and up 35 lbs from the same week last year. This was the equivalent of adding 25,485 head to that week’s slaughter total, says HedgersEdge.com
BEEF DID NOT CAUSE E.COLI CASES
MCDONALD’S recall of its Quarter Pounders in 13 states due to E.coli 0157 hit the headlines. But the beef industry escaped a bullet as Colorado Agriculture Department officials quickly ruled out the beef patties used in the Quarter Pounders after testing found no traces of E. coli in the beef. Instead, slivered onions used on the burgers and supplied by Taylor Farms, Colorado Springs are the likely source of the outbreak, said the Centers For Disease Control (CDC). The number of E.coli cases had risen to 90 by last Wednesday, said the CDC, up from 75 reported cases the previous Friday.