Cattle Price Report

Peak Prices Are Gone, Profitability Remains

Victoria G Myers
By  Victoria G. Myers , Progressive Farmer Senior Editor
Cattle prices are projected to be lower for 2016 as herd expansion continues into 2018. (DTN/The Progressive Farmer file photo by Joe Link)

SAN DIEGO (DTN) -- The cattle market has seen its peak, CattleFax analysts told producers attending this year's annual meeting of the National Cattlemen's Beef Association in San Diego, California. However, Randy Blach, CEO of CattleFax, stressed in his presentation Thursday, that more moderate prices would not take all the profitability out of the beef industry.

Cow-calf producers responded to market signals and turned the heat up on herd expansion, adding 600,000 head to beef cow inventory numbers for 2015. That upward trend will continue, said Kevin Good, senior analyst and fed cattle market specialist.

Good reported producers will add another 1.1 million head to the beef cow herd in 2016, taking the total to 30.8 million. In 2017, there will be 600,000 more, and in 2018, another 200,000. That would get beef cow numbers to around 32 million head, from the 2014 low of 29.7 million. Total cattle inventory in 2016 is expected to be 3.5% larger (+3.1 million), the biggest increase the industry has seen since 1974.

Those larger supplies will contribute to lower prices for fed cattle, steers, bred cows and utility cows. Good placed average 2016 prices for 750-pound steers at $168/cwt (-18.8%); for 550-pound steers at $195/cwt (-22%); and for utility cows at $80/cwt (-20%). Bred cow values, which had eclipsed all reason in the opinions of some, were projected to cost between $1,800 and $1,900 per head, a 13% decrease.

Steer and heifer slaughter for 2016, was forecast to increase 2.6%, to a total of 23.7 million, due to larger feeder and calf supplies. That marked a slight increase over 2015, which came in at 23.1 million head, a 4.5% decline from the prior year. Carcass weights (cold) will only climb 1 pound on average in 2016, a major slowdown after a 20 pound increase last year. Total slaughter for 2016 was forecast at 29.6 million head, up 800,000.

The U.S. calf crop increased 570,000 head over the past two years, with a nearly one million head increase expected in 2016 due to the growing beef cow herd. All of this will add up to increased beef production in 2016, to 24.4 billion pounds, a 700 million pound increase. Blach predicted packers would finally be able to see higher utilization rates and more positive margins. Fed cattle prices were projected to average $133/cwt, a 10.1% drop.

Level to lower feed and forage prices were the underpinnings on which a lot of the anticipated continued profitability in the beef business was built on. That makes weather issues, or crop loss, major potential market movers this year.

Chad Spearman, grain market specialist, said he expects to see cheaper protein and hay, with hay stocks up and prices down. Corn will likely stay well under $4 per bushel, averaging $3.75 for the coming season. Producers will plant larger corn and soybean crops, he added, with corn at 89.5 million acres and soybeans at 84 million acres. Wheat acres will drop to 51.9 million acres.

On the whole, Good said U.S. beef producers would increase production 3%. Globally, beef production was expected to climb just 1%. Mike Murphy, risk management specialist, reported beef imports to the U.S. would fall 8% this year, and exports would climb 3%. That export level will be key to maintaining projected prices, added Blach. He said domestic beef demand is expected to pull back 3% to 5%, under the weight of pork and chicken, which will continue to have a strong retail price advantage.

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Victoria Myers