THE cash live cattle market takes a pause after June begins with a holiday-shortened week. Cattle prices that week declined from the previous week. They were initially forecast last week to be steady with the prior week but an extremely light trade through Wednesday indicated that prices might be lower again. Meanwhile, boxed beef cutout values fail to gain as much traction as packers hoped for from the reduced production in the holiday week. A disappointment was that the Choice cutout after the holiday fell short of what packers had hoped it would attain. But packer margins turned slightly positive last week, which prompted market analysts to suggest that slaughter levels might increase slightly. The Choice cutout’s spot market price also increased.
Cash live cattle prices (basis a 5-area steer) the week before last averaged $188.91 per cwt live or $300.81 per cwt dressed. These were down $1.18 per cwt and $2.68 per cwt, respectively, from the prior week and were the first price declines in six weeks. The only trade through last Wednesday saw prices at $188 per cwt live or $299 per cwt dressed in Iowa or at $183 per cwt in Kansas. Kansas reported more sales Thursday morning at $185 per cwt. It was possible that prices would strengthen at the end of the week, as they did the previous Friday. Live cattle futures prices meanwhile remain far below current cash prices. The June live cattle contract last week was at an $8-9 per cwt discount to the prior week’s average live price. This difference is positive for those with hedged cattle but it is not forcing cash prices to be much lower than they are right now.
Weights Are Far Above Last Year
Overall carcass weights meanwhile were flat in the latest reporting week with the prior week but steer and heifer weights remained far above last year’s levels. Steer weights in the week ended May 25 averaged 920 lbs, down 1 lb from the prior week but up 37 lbs from the same week last year. Heifer weights averaged 846 lbs, down 1 lb but up 29 lbs, respectively. Overall weights averaged 851 lbs, flat with the prior week but up 38 lbs from last year. This was the equivalent of adding 28,145 head to that week’s slaughter total of 602,136 head. Carcass weights seasonally should trend higher after mid-June, attaining a seasonal top during the late November-December period, says Andrew Gottschalk, HedgersEdge.com. They should continue to outpace year ago levels for the balance of the year. But the spread from the current record high levels to those of a year ago may narrow, he says.
As noted above, beef cutout values did not advance as much as expected after the Memorial Day holiday. The comprehensive cutout (cuts, grinds and trim) the week before last averaged $310.69 per cwt. This was up $2.57 per cwt from the prior week but it was well below the weekly high so far this year of $315.72 per cwt set the week of March 22. The Choice cutout averaged $309.76 per cwt, up $3.29 per cwt from the prior week. The Select cutout averaged $299.17 per cwt, up $3.03 per cwt. Formula-priced sales dominated the sales volume the week before last. They accounted for 59.9% of the total, with spot market sales second at 28.5%. Forward sales slipped to account for only 11.6% and export sales accounted for 12.2%. The Choice cutout the first four days last week increased by $3.01 per cwt to $316.21 per cwt.
One of the brightest spots in the beef complex is the record high price of domestic lean manufacturing beef (90CL). It averaged $354.00 per cwt the week before last, setting another new high. It was up 26.5% on the same week last year. Conversely, the price of fatty trimmings (50CL) averaged $75.93 per cwt, down 58.0% on the same week last year. By-product values averaged $11.43 per cwt, down 10.0% on last year.
BEEF DEMAND REMAINS ROBUST
BEEF demand in both Canada and the U.S. was extremely robust in 2023 and it appears to remain that way so far in 2024, at least in the U.S. Demand has in fact been more resilient than expected and has offset weakness in U.S. beef export volumes. Many observers had believed that food inflation, including that for beef, would hammer demand at home and that Americans would trade down to cheaper beef cuts and to much cheaper pork and chicken. But there has been little evidence of that so far this year.
USDA’s All Fresh beef retail price in January averaged $7.81 per lb, while its Choice beef price averaged $8.08 per lb. These were up 6.7% and 8.5%, respectively, on January 2023 prices. Prices inched up the next three months, with the April All Fresh price averaging $7.95 per lb and the Choice price averaging $8.15 per lb. These were up 3.8% and 8.5%, respectively, on the prices of a year earlier. Conversely, April’s chicken retail price averaged $1.95 per lb, down 32.1% from a year ago. But this dramatic differential appeared to have little impact on beef sales, say analysts.
Beef demand in Canada last year was strong but declined slightly from 2022, says Kevin Grier of Kevin Grier Marketing Analysis and Consulting. Beef per capita consumption fell by nearly 2 kilograms to hit 23.05 kilograms on a carcass basis in 2023, according to data from Statistics Canada. This was the lowest figure in StatsCan records and is about half the total of the mid-1970’s, he says. But the other record set last year was the price of beef. The StatsCan Consumer Price Index for beef was the highest on record, even on a deflated basis. In other words, even taking out the effects of overall inflation, real beef prices were still a record by a wide margin, says Grier.
Demand however is more than just consumption, says Grier. It is the combination of consumption and price. In that regard, beef demand declined in 2023 compared to 2022. With that noted, beef demand was still among the strongest since 1990. In fact, demand in Canada has been robust since about 2014. In other words, Canada has seen about ten years of solid beef demand performance and since 1990 demand has been relatively stable. The higher the price, the less Canadians eat and the lower the price the more they eat, he says.
U.S. Sees Increased Demand
Conversely, the lower the supply available per person, the higher the price and vice versa, says Grier. Canadian beef demand has exhibited a classic economic relationship of consumption responding predictably to price. There has been a glaring and obvious beef price and consumption relationship in Canada. As a general statement, beef demand in Canada has been steady for about 35 years. Within that broad context, over the last ten years, beef demand has been better than the previous 25 years, he says.
Beef demand in the U.S. was rock solid from 1990 through 2019, says Grier. But from 2020 through 2023, demand hit a whole new level. Unlike Canada where higher prices mean lower consumption, in the U.S. higher prices in the past four years were met with increased consumption. This means that unlike Canada, which has seen steady demand, the U.S. has seen increased demand. That is seen graphically as a shift in the demand curve to the right, he says.
Grier also examines where the live cattle and beef markets might go from here. Industry participants can be certain about few things in the market, he says. But one that appears certain is that beef production will be down this year. Large carcass weights will only partially offset reduced slaughter in 2024. In addition, production will be down next year compared to this year’s lower tonnage. This forecast is based on inventories and inventory trends. Lower inventories of cattle now mean lower slaughter later. So, there is a level of confidence on the supply side. Demand is another question. U.S. demand has been excellent this year so far as well. Beef prices hit record levels in April. Despite record high beef prices, total dollars spent on beef are up materially according to anecdotal and other data sources. This means that demand is holding again in 2024 in both Canada and the U.S.
Demand Excels Despite Pressures
The excellent demand performance comes despite high interest rates, record high gas prices, soaring inflation and spiraling housing costs, says Grier. Based on current production and trade trends, as well as consumer price trends, full year 2024 U.S. demand will be outstanding. It will belong on a new level demand curve. His cattle price forecasts into next year assume that demand holds at current levels. Grier forecasts that USDA’s 5-area steer price will average $182 per cwt in July, $180 per cwt in August, $188 per cwt in the fourth quarter, $190 per cwt in the first quarter of 2025 and $190 per cwt in the second quarter of 2025.
If demand does better than hold at current levels, cattle prices will be higher than forecast, says Grier. If it does worse than hold, cattle prices will be weaker than forecast. With these positive demand points noted, it would not be prudent to assume that demand will be better than current levels. In other words, demand is unlikely to move to an even higher level. The reason for this is that consumer resistance to higher prices is having a market impact. Consumers are switching to lower-priced meats, particularly chicken. Higher-end branded beef product movement is slowing. More of the carcass is going to grinds. Grocers and restaurants are switching to AA (the Canadian grade) and USDA Select to lower costs, he says.
In addition, an unusual share of beef is being sold on feature as consumers balk at paying regular prices, says Grier. More beef in the meat case and in retail fliers comes from Mexico and Australia. Menus are moving to lower-priced beef items. Prudence suggests that demand merely stays at these excellent levels in 2024 and 2025. It neither increases nor decreases from the outstanding levels of 2020-2023. What that means for cattle and beef prices in 2025 will depend on a variety of plausible outcomes, such as plant closures, he says.
AUSTRALIAN EXPORTS GROW
AUSTRALIAN beef exports continue to grow amid growing international demand for Australian beef as U.S. production slows. This and higher rates of beef production in Australia pushed May export volume to levels not seen since 2019 when drought herd liquidation was in full swing, says Beef Central. Australia’s beef exports for May reached 113,923 metric tons (mt). This was the biggest monthly number seen since December 2019 and the largest May figure since the nation’s previous drought in May 2015.
The elevated production trend is clearly seen in weekly national slaughter data, which hit new season highs for each of the past three full production weeks, says Beef Central. The slaughter total reached more than 142,000 head the week before last. Year to date, export volume has now reached just short of 500,000 mt, the highest five-month total seen since the 2015 drought year. The sharp rise seen in trade into the U.S. since September last year continued, with May shipments totaling more than 30,000 mt. Trade into Japan during May hit 25,435 mt, more than 3700 mt up on April shipments and 341% higher than in May last year. Much of this was due to declining export volumes of chilled and frozen grain-fed beef out of the U.S. into Japan, now being displaced by Australian product, says Beef Central.
However, Australian producers who feed cattle for export are not making money despite the growing exports. Typical feeder cattle entering an export grain-fed program last week would represent an A$71 per head trading loss, while better performers would be closer to break-even, says Beef Central. Its latest grain-fed trading budget is based on heavy feeder steers going on feed last week and closing-out in mid-September after 105 days on feed. Its latest budget compares with its previous trading budget calculated in February (closing out at the end of May) when a forecast loss of A$96 per head was calculated on cattle being forward contracted as grain-fed cattle at A$6.75 per kilogram (kg). Forward grain-fed slaughter contracts were in transition at the time, with some quotes still at A$7.00 per kg, delivering a much kinder loss of A$7 per head. Increasing numbers of cattle on feed (both the March and December quarters saw national COF totals hit new records), together with some flat international beef markets due to economic conditions and consumer spending, have motivated beef processors to lower their bid prices on finished grain-fed steers. Forward contracts on grain-fed cattle have fallen from A$7.00 per kg early in the year to A$6.50-6.60 per kg, says Beef Central.
IOWA TAKES ACTION OVER BIRD FLU
IOWA becomes the latest state to take drastic action to combat the spread of the highly pathogenic avian influenza (HPAI). Iowa Governor Kim Reynolds signs a disaster proclamation for Sioux County, effective May 28 through June 27, as well as for Cherokee County, effective June 2 through July 2. The proclamations allow state resources from Iowa Homeland Security, the Iowa Department of Agriculture and Land Stewardship and other agencies to assist with tracking and monitoring, rapid detection, containment, disposal and disinfection, while also waiving regulatory provisions related to commercial vehicles.
The first proclamation was issued just after an outbreak at a commercial layer operation that affected 4.3M birds. It was the first HPAI detection in Iowa since 2023 but was soon followed by a second in Cherokee County that affected 100,000 turkeys. All eyes are on HPAI’s spread as it continues to storm through flocks and herds, ticking up the number of affected chickens, turkeys, cows and even people affected by the virus, says MEAT+POULTRY. While USDA, the Department of Health and Human Services and other federal agencies have implemented mitigation plans backed by federal funding, individual states and outside nations have taken control with added biosecurity measures, it says.
With HPAI surfacing in U.S dairy cattle in late March (as reported in CBW’s April 8, 2024 issue), Colombia suspended beef imports from states with positive cases. As of now, it is the only U.S. trading partner to impose restrictions on beef shipments as a result of HPAI detections in dairy cows, says M+P. However, other nations are growing wary and are taking steps to prevent the virus from penetrating their herds. Since the beginning of the current HPAI wave of cases, Canada has had more than 200 outbreaks among poultry, according to the Canadian Food Inspection Agency (CFIA). There have been no reported cases of HPAI-infected cattle.
CFIA in early May announced it would require additional specifications to the export certificate of imported cattle from the U.S., says M+P. Lactating dairy cows must test negative for the virus within seven days of export. Any cows that previously tested positive or have been around infected cows must complete a 60-day quarantine before they are eligible for importation. The H5N1 strain has yet to have been detected in Australia or New Zealand. Two layer operations in Australia tested positive for HPAI in late May but for the H7N3 and H9 strains of the virus.
GRASSLEY ADVOCATES FOR NEW AG POLICIES
VETERAN Iowa senator Chuck Grassley (R-Iowa) uses a Senate Agriculture subcommittee hearing to advocate for policies that would benefit farmers “with dirt under their fingernails” and foster opportunities for new and emerging farmers. The subcommittee convened to examine legislative strategies to improve pathways to the ag industry for generations to come. The Farm Bill needs to be updated to reflect the realities of farming today, not six years ago when the 2018 Farm Bill was passed, he said. Farmers today face the increased input costs of diesel, fertilizer, chemicals, seed and interest rates, he added.
Regarding commodity program payment limits, Grassley said he has been a strong advocate for higher reference prices for Title I commodity programs. With those higher reference prices, there should be common sense payment limitations on those programs. As he has pointed out early and often, just 10% of farm operations receive 70% of all yearly farm payment subsidies. Grassley also said that crop insurance is vital for making sure farmers can get through to the next year despite weathering difficult times outside their control. He was not just talking about the weather, he said. There are political decisions, embargoes and lots of other things farmers don’t control. The Senate has a bill that goes by the acronym, the FARMER Act, which would make crop insurance more affordable for farmers across the board, he said.