Cattle markets are fairly stable right now, packers are struggling to limit their red ink and have slowed slaughter rates in order to maintain a high cutout value. Mother Nature controls the supply of cattle while packers control the supply of beef. We are seeing slaughter levels below 600,000 head now, but then we are in a slower demand part of the year.
Meanwhile, fed cattle supplies are larger than they should be due to the packer slowdown. The last Cattle on Feed report showed that cattle in the feedyard are four-tenths of a% higher than last year. We have the largest number on feed since Feb. 1, 2012. January placements were down 7.4% and marketings were just about even with last January with one extra marketing day.
According to the boys at HedgersEdge.com, front-end cattle supplies will grow into April, which should keep fed cattle markets in the low $180 range. The good thing is, when front-end fed cattle reach their peak the spring grilling demand picks up, which should keep fed cattle prices stable going into summer.
The average price for Choice beef reached $8.08 in January, the highest price since last July’s number of $8.31. With all the news about inflation, which came in at 2.8%, and higher food prices, it’s remarkable consumers are continuing to buy beef. The WSJ reported recently that consumers are spending more of their disposable income on food, just about 10%, which is relatively good compared to the rest of the world.
When domestic beef supplies are low the industry starts importing more beef to fill the gap. Beef imports for 2023 were 4.125 billion pounds and live cattle imports reached 2 million head from Mexico and Canada. Shifts in trade to divert more beef to the U.S. from Australia, New Zealand, Brazil, Canada and Mexico are expected to continue.
The Daily Livestock Report said, “The recent release of USDA ERS December trade data finalized annual totals for livestock trade in 2023. On the cattle side, total cattle imports for 2023 were just under 2 million head, an increase of 21.7% or 352,500 head. Although this may seem like a significant increase in cattle imports year-over-year, the 2023 annual total is only slightly higher than the five-year average from 2017-2021, which was just over 1.9 million head. The large increase in cattle imports for 2023 is due largely to a 43.2% (375,854 head) increase from Mexico to more than 1.2 million head, compared to 870,700 head in 2022.
“Cattle imports from Canada totaled 734,032 head in 2023, down 3.1% or 23,354 head from 2022. In 2023, Mexico accounted for 62.9% of total cattle imports while Canada garnered a share of 37.1%. Total cattle exports for 2023 were 349,290 head, down 74,870 head or 17.7% from 2022. Exports to Mexico saw a 57.1% (58,923 head) decline to 44,198 head and exports to Canada decreased 7.3% (22,591 head) to 287,684 head.”
You need to remember that 60% of beef consumed in the U.S. is ground beef, which is the market most imported beef goes into. Beef supplies are expected to decline but imports could offset some of that market. 90% lean trim was trading at $312.66, which is the high end of its trading spectrum.
Fed beef supplies are big for now and most analysts expect supplies to be cleared out by May. Most analysts expect the real supply problem to come in the second half of the year. Andy Gottschalk at HedgersEdge.com said in his last market outlook:
“Second half prospects for cattle prices look very promising, as first half feedlot placements should decline relative to last year. This expectation is reflective of the reduction of feeders and calves outside feedyards at the beginning of this year which is estimated to be down approximately 1 million head with an additional decline of 692,000 head this year. And increased heifer retention would further reduce feedlot placements. In summary, the total cattle supply outlook and beef production decline should foster higher prices for the entire cattle complex.
“That said there may be a bump or two navigating the first half of this year. To sum up the outlook, annual beef production is expected to decline, an action which may be more pronounced during the second half of this year.”
Meanwhile, let’s start praying for those spring rains. — PETE CROW
