Cattle futures prices have risen to their highest on record as drought conditions in the US Southwest devastated animal feeding grounds and helped push the size of the domestic cattle herd to its lowest level in eight years.
The “persistent” drought in the U.S. Southwest, which is gripping key ranching operations — in Texas, Oklahoma, Kansas and Nebraska — has resulted in the killing of female animals over the past year and a half, said Walter Kunisch, Jr., senior commodities strategist at HTS Commodities.
According to the US Department of Agriculture’s Semi-Annual Cattle Report, the US cattle and veal herd totaled 89.3 million head as of January 1 of this year, down 3% from the January 1, 2022 total. That was the smallest since 2015.
The drought on the Southern Plains meant there was less grass for livestock to forage, said David Maloni, president of foodservice supply chain consultancy Datum FS. Livestock numbers have declined about 5% since peaking in 2019 due to “poor grazing conditions due to drought, increased feed costs and poor margins”.
Prices for feed cattle, which are cattle bought for the feedlot market, and live cattle that have reached slaughter weight in the feedlots hit record highs on Wednesday, according to FactSet data.
Ultimately, forage cattle become live cattle, so higher forage cattle prices can lead to higher live cattle prices, Kunisch said. “As cash and futures prices for forage cattle soar to record levels, we’re having a hard time seeing an end to the secular bull market in the US beef complex,” he said.
Fodder cattle for August delivery were trading at 243.25 cents a pound on the Chicago Mercantile Exchange on Wednesday, a record high for the most active contracts based on data going back to November 1971. Prices have traded around 33% higher so far this year.
The August livestock price was at an all-time high of 175.5 cents a pound on Wednesday, based on data from November 1964, with prices up about 11% year-to-date.
demand
Demand was also a key factor in the record high prices for cattle.
The high prices reflect tighter supply as well as “continued exceptionally strong demand for beef,” said Lance Zimmerman, senior beef analyst at Rabobank, adding that the strength in consumer beef demand appears to have “surprised participants in the futures market.”
The cash market for forage cattle, also known as livestock, rallied from late March through early April and last week, posting an average week-over-week gain of $4 per hundredweight. or hundredweight, which equals 100 pounds, and hit a new all-time high of $182 per hundredweight, Zimmerman said.
“Futures markets have taken a more ‘prove it to us’ stance on beef demand and the spot market continues to demonstrate that demand for beef and feedstock remains relatively strong,” he said.
Zimmerman said the USDA packaged beef price, which represents the wholesale price of the beef carcass, averages $287 per hundredweight. year-to-date to last week, compared to $270 last year for the same period.
From January to April 2022, wholesale demand for beef hit a 30-year high and while indices tracked by Rabobank suggest demand fell 8% over the same period this year, it is still the second highest demand of January to April, he said.
Despite the economic headwinds consumers are facing, “they still support a healthy and strong beef and cattle market,” Zimmerman said. “The higher prices on the futures markets are not only due to a tighter supply.”
animal feed
Grazing conditions are expected to improve, but that won’t alleviate scarce livestock anytime soon.
Kunisch believes that “Mother Nature will deliver a sip of rain and moisture to key ranching states sometime this year” and that this will help improve grazing conditions.
However, as moisture enters these states, upstream cow and veal producers will want to retain females for breeding, and as “the scenario accelerates, we expect the supply of forage cattle to shrink and prices for both livestock and cattle to decrease.” Forage cattle will rise,” said Kunisch.
Meanwhile, in ranching states like Texas, Kansas and Nebraska, supplies of corn, an important feed for cattle, are scarce and the cost of feed is high, he said. “Until the drought abates in the West, corn prices will likely remain high, which may help support livestock prices,” he said.
Corn futures on the Chicago Board of Trade ended Wednesday with the most active July contract at $6.08 a bushel, which is above the roughly $3 to $5 trading range from mid-2014 to early 2021. They’re down about 11% this year.
Feed costs have come down due to bigger harvests in South America and expectations of bigger harvests in the US this fall, Maloni said, adding that he “expects feed supplies to improve significantly with the domestic crop later this year, but we need better weather and have done so.” There is still a long way to go before these crops are “grown”.
Retail beef
At the retail level, consumer beef prices have trended “steady to falling” since a record $7.55 per pound hit during the COVID-19 pandemic in October 2021, according to Rabobank’s Zimmerman.
Current USDA prices are 22 cents cheaper than those highs, he said, but higher underlying cattle market values and stronger wholesale beef prices suggest retail prices will rise through the summer and fall.
The daily meat price for beef products is approaching last year’s levels, and Zimmerman said it will “increase slightly through the remainder of 2023 and for the next few years.”
He said that had to do with tighter supply and higher livestock costs, but prices also reflected “demand dynamics”.
“Consumers still view beef as an expense worth the higher prices, and it’s still generally affordable,” Zimmerman said. On average, US consumers would have to work about 15 minutes to provide each family member with a portion of beef, he said.
“There is more higher quality beef on the market than at any time in history, and the juiciness, tenderness and flavor of beef cannot be matched by any other protein product.”
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