John Nalivka: Thoughts on Beef Production, Prices and Margins

02:33PM Sep 20, 2019
Will Feed Inc 001
Beef production is on pace for a 3% increase.
( FJ )

Beef production will be up 1% this year from a year ago when it was up 3% - according to Nalivka. Perhaps that doesn’t provide much consolation to anyone dealing with lower fed cattle prices, although there was a time when the industry was pretty much in consensus that increased production led to lower prices – before the topic of margins. Digging into the numbers further does provide some insight.

Margin estimates are interesting but, they are only part of the analysis and the story. Taking a look at beef production by class of cattle can give a different view – similar to analyzing beef demand by primal rather than the entire carcass. USDA slaughter reports are much more reliable than cattle on feed reports and slaughter by class and weights are available weekly.

Digging into the numbers, year-to-date (YTD) through September 6th, steer slaughter was down 2% from the same period a year earlier. I have some concerns about this number but that is for another day and another discussion. Taking the YTD slaughter together with the YTD average steer carcass weight generates a figure for implied beef production from steers. The average weight for steers was down 5 lbs. from a year ago and when combined with slaughter, yields a beef production estimate from steers  that was down 2% from a year ago.

The other half of the story, heifer slaughter YTD through September 6th, was up 7% from a year ago. Aside from beef production, that figure has implications regarding the size of the herd going forward and I have mentioned this numerous times. YTD carcass weights for those heifers through September 6th were down 6 lbs. from the prior year, leaving beef production from heifers up 7% and the highest since 2008!

So, when we combine the estimated production from steers with the production from heifers, the total is also the largest figure since 2008. Increased production - lower cattle prices – competitive markets. There is more to the story than just margins. As I have often said, there is more to a financial statement than just the bottom line margin. For true understanding, you need all of the numbers and the circumstances behind those numbers.

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