Author: Charley Martinez

In August 2021, the USDA announced a new market news report that would contain the distribution of weekly US fed cattle prices using price “bins” (LM_CT215). What makes this report unique is the way that price data are reported. Prices are reported in $2 increments, or bins, for negotiated cash, net formula, net forward contract, and negotiated grid nets. Figure 1 shows an example of how these weekly data are reported. The weekly weighted average live fed cattle price is highlighted in Figure 1.  The number of fed cattle selling at each $2 per cwt premium or discount to the average is reported in the grid.  

Figure 1. Snapshot of Data Reported in USDA National Weekly Direct Beef Type Price Distribution (LM_CT215)

The new distributional data allow market participants to understand fed cattle prices in more detail and go beyond minimum, maximum, and average prices for each marketing type. With this new distributional dataset for formula and negotiated fed cattle prices, we^[1] analyzed how weekly prices between these two markets interact with each other. One objective of our study centered around the impacts of negotiated prices on cattle markets. Specifically, as concerns have risen in relation to a possible thin cash market, we wanted to understand whether or not negotiated prices impact formula prices, or if it’s the other way around, as some market participants have suggested. Figure 2 displays a visual representation of the results from our study and shows how prices interact with each other (from August 10, 2021, to May 14, 2024). Current negotiated (orange) and formula (blue) prices for a given week are in the middle. We found that, depending on the market, current prices are impacted by the preceding three weeks of prices (the two columns on the right and left).

Figure 2. Negotiated Cash and Formula Fed Cattle Price Relationship Flow Chart. Data is weekly for the time range, August 10, 2021, to May 14, 2024 (n = 145).

Our study found that the current negotiated cash price for a given week (top middle orange box) is positively impacted by the week prior negotiated cash price (green dotted line), and negatively impacted by the negotiated price 3-weeks prior (solid red line). Current formula prices were found to be positively impacted (green dotted line) by the formula price from the prior week and the prior two weeks of negotiated fed cattle prices. However, formula prices were negatively impacted (solid red line) by formula price from two weeks prior. 

Despite concerns that the negotiated cash market is too thin and does not provide marketing information to the formula market, we find that the negotiated price does influence the formula fed cattle price. We find evidence supporting the conclusion that negotiated cash price information is being transmitted to formula price variability, which is expected because formula prices are designed to be based on the negotiated trade. Our results also indicate that formula prices do not impact on the negotiated price. 

^[1] Boyer, C.N., E. Park, A. F. Ramsey, and C. Martinez. 2024. “Formula and Cash Negotiated Fed Cattle Price Relationships”. Journal of Agricultural and Resource Economics, forthcoming.

Martinez, Charley, Christopher Boyer, Eunchun Park, and A. Ford Ramsey. “The Relationship Between Formula and Negotiated Cash Fed Cattle Prices.” Southern Ag Today 4(34.2). August 20, 2024. Permalink

Last Friday, the USDA released its monthly cattle on feed (COF) report. While some COF categories/numbers are reported consistently each month, the USDA also sprinkles in unique quarterly and annual numbers in these monthly reports. Last week’s report included two items that were unique, “Cattle on Feed by Class on 1,000+ Capacity Feedlots and Quarter – States and United States: 2023”, and “Feedlots, Inventory, and Marketings by Size of Feedlot – United States: 2022 and 2023”. 

The Cattle on Feed by Class on 1,000+ Capacity Feedlots and Quarter data offers insights that are more in-depth than January 1 estimates. It shows the quarterly estimations of heifers and heifer calves, by major fed cattle state, by quarter. On October 1, 2023, there was a total of 4.64 million females on feed. Two weeks ago, Southern Ag Today highlighted the reduced number of heifers being retained as replacements (Griffith, 2024). Figure 1 contains the number of heifers on feed for each quarter of 2023, by state. In Oklahoma, the reports indicate that females on feed were decreasing until the last quarter (October 1). In Texas, quarter 2 (April 1), peaked in terms of number of females in all fed states but also with most females on feed in 2023, then maintained throughout the last two quarters of the year. The number of heifers on feed are historically large.  While the January 1, 2024, number of heifers on feed are not reported by state, more heifers were reported on feed on January 1, 2024 (4.735 million head) compared to January 1, 2023 (4.66 million head). 

Figure 1. Heifer and Heifer Calves on Feed by Class on 1,000+ Capacity Feedlots and Quarter (Source: USDA)

Figure 2 contains the number of feedlots by head capacity (over 1,000 head) in 2022 and 2023.  The cattle on feed report only includes feedlots with 1,000 or more head on feed.  The February cattle on feed report and the annual cattle inventory report provide some insight into the number of head on feed in smaller feedyards.  Feedlots with fewer that 1,000 head decreased in number from 24,000 in 2022 to 23,000 in 2023.  While those smaller yards had a few more head on feed than the year before, their total marketings in 2023 declined 4.5 percent in 2023 compared to 2022.  

Figure 2. Feedlots by Size of Feedlot – United States: 2022 and 2023 (Source: USDA)

The total number of feedlots decreased from 26,093 in 2022, to 25,103 in 2023.  Tighter feeder cattle supplies might be expected to reduce the number of feedyards.  The feedlots with capacities of 1,000-1,999, 8,000-15,999, 16,000-23,999, and 32,000-49,999 increased in total numbers compared to the previous year. Whereas feedlots with capacities of 2,000-3,999, 24,000-31,999, and 50,000 and over decreased in total numbers compared to the prior year. 

Tighter feeder cattle supplies, made even tighter by herd expansion, over the next few years will likely stress feedlots numbers. Although the long-term trend of feeding a larger percentage of total cattle for longer periods of time will help.

Martinez, Charley. “Heifers on Feed and Feedlot Demographics.” Southern Ag Today 4(9.2). February 27, 2024. Permalink

At conferences, field days, and producer meetings throughout the Spring and Summer, many producers have often asked, “When will this market bust, and start a downward trend?” Answering this one question isn’t simple. There are various factors that impact the prices across the beef supply chain. One indicator of future price trends throughout the beef supply chain is the Boxed Beef Cutout Value. The boxed beef cutout represents the estimated gross value of a beef carcass based on prices paid for individual beef items (primal cuts) derived from a beef carcass. Essentially, as consumers pay for beef items derived primal cuts (i.e. steaks from the rib primal) in conjunction with expected seasonal demand, retailers, and food service entities purchase primals or boxes of specific cuts that translate into the price and value seen in the boxed beef value.  

Figure 1 displays the weekly Choice boxed beef cutout value. The red line denotes the 5-year average from 2017-2021, the dotted blue line is last year’s (2022) weekly values, and the orange dashed line this year’s weekly values up through 8/25/2023. Through 2023, the cutout value has been above last year and the 5-year average. The low of $265.82/cwt was in early February. Since then, the weekly value trended up and peaked at $339.93/cwt in mid-June. Through the rest of the summer, the cutout decreased in value from the peak but has remained between $300-$320/cwt. The 5-year trend and 2022 cutout values remained relatively steady during the remaining months of the calendar year. If 2023 follows trend, then the value is expected to remain above the previous year and the 5-year average. 

Other factors impact this value, such as fed cattle supply, which are currently tight given the most recent cattle on feed report. The amount of beef grading Prime, Choice, and Select affects relative supplies of each grade even though total beef supplies are tighter.  Given that the national herd is still currently in liquidation mode, fed cattle supply is going to get even tighter over the next couple of years. When looking at the boxed beef value, there are few market signals indicating that it will be decreasing anytime soon, so when answering the question at the beginning of this article, my answer is, “not any time soon”. 

Figure 1. Weekly Boxed Beef Cutout Value

Martinez, Charley. “A Check-in on Boxed Beef Cutout Value.” Southern Ag Today 3(36.2). September 5, 2023. Permalink