The spring rally is continuing despite the political atmosphere and nervousness surrounding daily announcements as the global trade war navigates its early stages. According to analyst Rob Cook, live cattle futures traded higher in early Thursday action, with April at $201.75/cwt, up $0.35, and June at $198.20/cwt, up $0.32. Feeder cattle also saw moderate gains, with March at $281/cwt, up $0.75, while April edged up to $281.50/cwt, up $0.77. The bullish market for feeder cattle helped drive feedlot margins up to $366.40/head last week from the $198.44/head feedlots saw in the week prior, according to Sterling Marketing.
While the strong market continues, weather patterns across the country are showing a drought across the U.S. which could have a major impact on heifer retention and herd rebuilding, and this will play heavily into the trade relationship between the U.S. and Brazil moving forward.
Oklahoma State’s Derrell Peel says the number of heifers in feedlots at the beginning of the year was slightly down, making up just over 38% of the total cattle on feed.
“The January 1 inventory of beef replacement heifers was down 1% year over year and beef replacement heifers as a percent of the beef cow herd is at the lowest level since 2011. All of these indicate that no heifer retention was underway at the end of 2024,” Peel said.
With numbers staying low, and a looming drought, the U.S. inventory looks to stay low for the foreseeable future, which will push this market out even further.
There are two major factors that are going to impact our markets moving forward: our cattle cycle and Brazil’s. With data gathered from Agencia IBGE, in 2022, the Brazilian national cow herd saw an increase of 4.3%, the country’s cattle herd broke a record in the time series, which began in 1974, and reached 234.4 million head of cattle. This was the fourth consecutive year of growth. An interesting fact: the municipality of São Felix do Xingu in Pará had the largest cattle herd in the country with 2.5 million head.
From a USDA report in August 2024, they claim Brazil is the third-largest cattle producer globally and second-largest beef exporter. The USDA report forecasts decreased slaughter in 2025, due to the anticipated reversion of the cattle cycle. Producers are likely to start retaining cattle in 2025, driving calf prices upwards. Record beef exports are forecasted for 2024 and 2025. In 2025, domestic consumption is forecasted to decrease, as producers will prioritize exports due to strong external demand, devalued local currency and challenges faced by foreign competitors.
In the same report, it claims Brazil accounts for 25% of the global beef exports. Analysts are forecasting a 1% decrease; however, this is on the heels of a year that saw an 8% increase in 2024! Experts are claiming that strong retention in replacements helped drive up supplies and availability across the country but expect the reversion of their cattle cycle to start in 2025. They forecast producers are going to liquidate previously held inventories as prices are expected to slump due to oversupply.
The U.S. beef market has countered the short supply of U.S. cattle by pushing carcass weights into record levels while at the same time, importing record levels of beef from Brazil. In fact, the U.S. imported more pounds through January than we did in all of 2024, which is a 27.19% increase over last year. As cattle producers, the majority of us will immediately cringe when we hear this, so let me explain a little bit more.
My personal position is that this is a necessary evil. While I feel the packer put a multitude of producers out of business on account of their greed and coordinated market collapse, leading to a strong distrust for the deep state they operate in, I also concede that our industry survives if they survive. So, I tread lightly in these areas but try to understand all points and gather all the facts that I can before sharing my opinion.
China is Brazil’s largest customer, but this situation fluctuates as much as ours does with China. The U.S. mainly imports lean trim from Brazil, followed by Australia and New Zealand. The intention of this product is to blend U.S. beef with their lean beef to meet consumer demand. Most of the imports from Brazil fall under the “other” category of beef, and they filled their yearly quota as of Jan. 17, so now they will see an additional 26.4% tariff according to a source at the U.S. Meat Export Federation. It remains unclear how this will curb imports, if it does at all.
Why this is important to watch is because demand for U.S. beef has maintained and even grown in nearly every market. At levels we see for U.S. cattle, the packer is losing around $130/head right now, so they are imploring transactions to help maintain cash flow and operating expenses. Demand for U.S. beef will continue to grow because of the genetic merit of the cattle. Our beef conversion and growth abilities from our sophisticated feeding infrastructure results in a globally sought after product. While I don’t like that we import so much beef, I understand the business behind it. — LOGAN IPSEN
