Short supplies of beef and competing meats likely will keep cattle prices at or near record highs at least through 2015, says Cattle Fax analyst Kevin Good, who updated feedyard owners and managers during the Merck Animal Health Cattle Feeders Business Summit in Denver this week.
Good notes that in response to high prices, cow-calf producers across much of the country have begun retaining more heifers and sending fewer cows to market. Gradual expansion in beef herds and growth in pork and poultry production eventually will slow the bull market down, but for now, beef producers, particularly cow-calf producers, are enjoying an unprecedented run of profitability. Key points from Good’s presentation include:
- Corn prices, at about $3.40 per bushel, are down from $6.60 a year ago and the lowest since 2010.
- A 550-pound calf currently is worth about $552 more than a year ago, while a 750-pound yearling is worth $555 more and a finished steer is worth $488 more than last year.
- Heifer slaughter so far this year is down 7 percent from last year and cow slaughter is down 16 percent while steer slaughter is down by just 2.2 percent, suggesting ranchers on average have shifted from liquidation toward expansion. Year to date calf slaughter for veal production also is down 16 percent as more dairy calves go into feedyards to address shortages in beef supplies.
- Cattle Fax projects cow slaughter will decline by another 8 percent, or 500,000 head, during 2015.
- Reductions in cow slaughter create a shortage of lean beef for grinding, resulting in more chucks and rounds from fed cattle going to ground beef, which increases wholesale cutout values. Prices for 90 percent lean trim, currently around $290 per hundredweight, are at record-high levels.
- The U.S. beef cow inventory will show year-over growth over the next few years.
- Dairy producers also have seen strong profits, with exports growing and the ratio of milk income to feed costs well above the five-year average. Dairy cow numbers likely will grow over the next few years, as will the number of dairy-breed steer calves going into beef production. Dairy steers now account for about 16 percent of finished cattle.
- Per-capita U.S. beef production this year will be about 53.6 pounds. Next year will bring the low point in per-capita beef production at 51.8 pounds, with a rebound to 53.2 pounds in 2016, 54.8 pounds in 2017 and 56.1 pounds in 2018.
- U.S. pork and poultry production have not grown significantly this year in spite of high beef prices and high overall meat prices. The Porcine Epidemic Diarrhea virus (PEDv) has slowed growth in pork production while reproduction problems have limited the ability of poultry producers to expand. So while retail beef prices are high, the ratios between beef and pork and poultry prices have remained close to a normal range. These issues likely are short-term, and production of competitive meats will increase over the next few years.
- Exports of beef and other U.S. meat and dairy products continue to grow. China has become the top global importer of beef. Although U.S. beef remains locked out of China, we have gained market share in other importing countries as Chinese demand stretches international supplies. The value of beef and offal exports currently add about $336 per head to fed-cattle prices.
- Cattle Fax projects 2014 annual average prices of $225 per hundredweight for calves, $190 for yearlings and $150 for finished cattle. Next year will bring even tighter supplies of cattle, suggesting higher prices, although growth in pork and poultry supplies could limit cattle prices. Overall though, Good is optimistic. “There is no reason,” he says, “for calf prices to come down significantly in the next couple years.”