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Beef Economist Says Beef Demand This Summer is Key

June 26, 2013
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—Derrell S. Peel, Oklahoma State University Extension  

Cattle and beef markets are still struggling to get on the same page.  Fed cattle markets are groping for a summer bottom amidst seasonally large slaughter and beef production. Meanwhile feeder markets appear to have found a bottom after being on the defensive since February. Of course, part of the reason is that fed and feeder markets are looking at different factors at different points in time. 

Feeder cattle markets have been focused heavily of new crop corn prospects for several weeks.  Feedlots have looking for feed price relief for the coming crop year relative to the drought driven record corn prices of the last year.   Feedlots have taken advantage of significantly lower feeder cattle prices the last three months to increase placements, year over year, in March and April and maintain a large, though slightly down, placement level in May.  Feeder markets are strengthening now based on better demand, ala feed prices this fall, and tightening of feeder supplies. 

Improved feed prices will likely be offset by higher feeder prices this fall.  Strong feedlot placements the past three months has surely utilized the slightly larger feeder supplies indicated on Jan. 1 and likely some of the heifers intended as replacements this year.  Feeder supplies will tighten considerably in the second half of the year with reduced feeder cattle imports and a smaller 2013 calf crop.  The possibility of heifer retention restarting again this fall could further tighten feeder cattle supplies late in the year.

Fed cattle markets are most concerned now with current beef production and movement of animals through the feedlots this summer and fall.  The summer low for fed cattle can occur anytime from now until Labor Day so it is hard call the low yet with so much summer left.  Fed cattle prices will take their cue from boxed beef prices this summer, especially as the seasonal peak in beef production passes moving into the third quarter.  That said, the placement of relatively large numbers of heavy feeders recently will keep third quarter beef production higher than earlier expected.  The May placements, in particular, included large numbers of very heavy feeders that will finish in the third quarter.

Summer beef sales critical

The above situation means that summer beef demand will be critical for the fed cattle market.  Choice boxed beef has dropped about $10/cwt. from the pre-Memorial Day high.  From a different perspective, you can say that Choice boxed beef is currently holding at levels above anytime last year despite a so-so Memorial Day holiday and continued stormy weather in many regions.  

A strong July 4 holiday, which is likely to be an extended weekend for many, may do a lot to help beef demand in July.  Beef is also receiving some help from stronger pork and poultry prices recently. 

Several other factors may help as well.  There are indications that beef exports have strengthened somewhat recently though the lags in data mean that we won’t know for sure for a while.  Also, there are signs that cow slaughter, especially beef cow slaughter, is pulling back.  This will support beef trimming prices and may also support Chucks and Rounds relative to summer hamburger demand.

 

 

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