Cow-calf producers throughout the nation would have given almost anything in the past two years to avoid reducing their herds because of severe drought. But at least there was and will continue to be a silver lining in the drought’s impact: higher prices for all classes of cattle. Cash live cattle prices will see another large year-on-year increase in 2023. Prices are likely to average around $156-157/cwt live, versus an average of $144.41/cwt in 2022.
Last year saw an 18% increase in prices versus the 2021 average, and it was the biggest annual increase since 2015, when prices advanced more than $40/cwt from the prior year. Prices this year are likely to be up 9% on last year. Prices are likely to be similar in the first three quarters and several dollars per hundredweight higher in the fourth quarter. The higher prices, as they were in 2022, will be driven largely by four years of liquidation of the U.S. cattle herd. The Jan. 1 total cattle inventory is expected to be down to 89.5 million head, down 2.4 million head from a year earlier.
Feeder cattle prices will also see a healthy increase. In the southern Plains, a 700-800 pound steer will see an average price of $180-182/cwt, versus $168.89/cwt in 2022, according to the Livestock Marketing Information Center. A 500-600 lb. steer will see an average price of $207-209/cwt, versus an average of $191.40/cwt in 2022.
Following four years of herd liquidation, the feeder cattle and calf supply outside feedyards is set to score a sharp decline, said Andrew Gottschalk of Hedgers Edge.com. By Jan. 1, this category of cattle was projected to be down about 595,000 head from the prior year. This would be the lowest total available supply since the record low at the beginning of 2015.
As a result of aggressive female herd liquidation during the previous four years, 2023 should also experience a significant decline in the annual calf crop number, Gottschalk said. The projected decline this year could approach 900,000 head. While drought conditions have shown some modest improvement, 61% of the area containing the cattle inventory remains in drought conditions of some varying degree. That said, the rate of herd liquidation should decline this year. But the likelihood of a turnaround into herd expansion is dependent on Mother Nature, he said.
The best news for beef is that the average monthly retail beef prices are below prior year levels, Gottschalk said. Within the meat complex, beef is the only product to claim that distinction. The November average Choice and All Beef series were $0.48/lb. and $0.37/lb. respectively, below the prior year. In contrast, pork prices and the composite broiler price were up $0.13/lb. and $0.31/lb., respectively. Turkey was up $0.20/lb. Beef is historically competitive to pork and chicken at current values, he said.
The challenge for 2023 will be to maintain the level of demand for beef achieved during 2022, Gottschalk said. To keep beef on the same demand plane this year, given the estimated reduction in per capita supply from 59.4 lbs. to 56.5 lbs., retail beef prices would need to advance significantly above their prior record high monthly average price of $7.90/lb. On a positive note, retail beef margins are currently maximized. This will allow retailers to absorb a significant advance in cutout values prior to a need to increase the average retail beef price from current levels, he says.
A report by HTS Commodities, a division of Hilltop Securities, takes a broader view of the challenges facing the industry. In 2023, the domestic macro climate, the U.S. consumer, the health of the restaurant/foodservice sector and the financial state of the feedlot industry are all precariously fragile, it says. In 2023, understanding the demand side of the equation will be critical toward understanding the price potential of live cattle. As the U.S. economy weakens, demand-related pressures will originate from the packing side of the business. These pressures can create headwinds for live cattle prices, it says.
As the U.S. cattle complex transitions from the contraction to the expansion phase, HTS sees three primary bullish narratives emerging, it says. When the breeding herd begins to expand and cow-calf operators start retaining breeding stock, the market will be structurally short of supplies. Contracting supplies will support higher feeder cattle, live cattle and beef prices. If unemployment and wage growth do not materially collapse, aggregate domestic beef demand can remain resilient. As the cattle herd expands and supplies tighten, cattle feeders should be in a position to exert price leverage over packers in the cash markets, it says. — Steve Kay
(Steve Kay is editor/publisher ofCattle Buyers Weekly,an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707-765-1725. Kay’s Korner appears exclusively in WLJ.)
