Category: Livestock Marketing

In our recent  Southern Ag Today article, Uptick in Livestock for Feeder Cattle, we showed that Livestock Risk Protection (LRP) purchased for feeder cattle has increased starting in 2021. LRP, an insurance policy that cattle producers can purchase daily to insure a minimum price level for a certain period, is also available for fed cattle (cattle greater than 1,000 pounds). One of the reasons why LRP was developed was to provide producers who do not sell 50,000 pounds of cattle at one time, which is a futures and option contract increment, an opportunity to hedge cattle. Fed cattle, however, are typically grouped and sold in larger loads, which better suits them to use futures and options to hedge cattle. The 2019 and 2020 increase in the premium subsidy rate for LRP did lower the cost of LRP to producers (Boyer and Griffith 2023a,2023b) and did appear to influence producers to purchase more fed cattle LRP contracts. In 2021 and 2022, the number of head and contracts sold has increased nearly four times (as opposed to the tripling in feeder cattle policies). Thus far in 2023, there has been a record number of LRP contracts sold and head insured. Similar to the feeder cattle contracts, the number of fed cattle insured with LRP is still relatively small compared to the number of eligible cattle. However, this policy tool seems to be growing in use and with increasing fed cattle prices, it will be interesting to see how many policies are purchased through the rest of the year.  

References

Boyer, C.N., and A.P. Griffith. 2023a. “Subsidy Rate Changes on Livestock Risk Protection for Feeder Cattle” Journal of Agricultural and Resource Economics 48(1):31-45. (Link)

Boyer, C.N., and A.P. Griffith. 2023b. “Increasing Livestock Risk Protection Subsidies Impact on Producer Premiums” Agricultural Finance Review 83(2):201-210. (Link)

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Boyer, Chris, Charley Martinez, Eunchun Park, Andrew P. Griffith, and Karen L. DeLong. “Uptick in Livestock Risk Protection for Fed Cattle.” Southern Ag Today 3(25.2). June 20, 2023. Permalink

Fed cattle futures prices surged to $185 for April 2024 and $175 in the nearby (June) contract, at the time of this writing.  This rocket ship ride to record prices is fueled by some fundamental market conditions and some conditions outside of the cattle and beef market.

Cash fed cattle prices have increased and some of the increase in futures prices is the futures playing catch up.  Feeder cattle prices are along for the ride.  Feeder cattle, 7-800 pound steers, in the South approached $200 per cwt while those in the Southern Plains hit $213 in local auctions.  

On the fundamental side, cattle and beef supplies are certainly tighter.  Daily average fed steer and heifer slaughter in May is 2.9 percent smaller than last year.  Beef production over the last 4 weeks is 3.9 percent smaller than last year.  Beef production reflects fewer beef cows going to market and lighter fed cattle dressed weights.  

On the demand side of the fundamental ledger, beef demand appears to continue to support higher prices. While packer margins are certainly much smaller, packers continue to demand cattle (us economists call this “derived demand”).  Consumers continue to buy beef and there is little evidence of large scale switching to less expensive meats.  

Other, broader market considerations are also working to boost prices.  The recent budget deal to avoid U.S. default provided a boost to the stock market that spilled over into other commodity markets.  Continued strong employment numbers are supported income and demand.  These factors contribute to some reduced fears of recession and better beef demand expectations.  

On balance, tighter supplies and good demand have boosted prices.  Other economic conditions have added some fuel for even higher prices.  Some good questions remain.  Are calf prices high enough to kick off significant herd expansion?  Competing meats are becoming cheaper relative to beef –   will we see some evidence of consumer purchasing changes?  For all the questions out there, no doubt higher prices are good news for ranchers after multiple years of tight or negative margins.

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Maples, Josh, and David Anderson.“$185.” Southern Ag Today 3(23.2). June 6, 2023. Permalink

Cattle ranchers continue to have a significant interest in direct-to-consumer marketing of their own beef. These ranchers are typically aiming to build their own brand and integrated business from the land: from their cattle, to the beef, and on to the consumer.  Some of this beef might be grain finished in a feedlot or grass fed and finished.  Those looking to start selling to consumers often struggle for a bit to figure out pricing their product.  USDA’s Agricultural Marketing Service (AMS) publishes some price data on wholesale, direct-to-consumer retail, and carcass prices for grass fed beef.  

Grass fed, direct to consumer retail prices for whole, half, and quarter carcasses were $8.08, $8.28, and $9.30 per pound in April.  All were higher than April 2022 but, whole and halves were lower priced than in March of 2023.  Ribeye steaks were quoted at $31.12 per pound, the highest price in the data which goes back to 2013.  Almost all the reported cuts were higher in price than a year ago ranging from $17.28 per pound more for filet mignon to $0.95 higher for skirt steaks.  

There is also some carcass price data through the Small and Very Small (SVS) Producer verified program. The weighted average grass fed carcass price reported under this program was $4.31 per pound in April.  As you might suspect, the weighted average price was the highest, $4.99 per pound in 2020 during the pandemic.  A range of prices are reported and the range at the peak of the pandemic was from $3.20 to $6.75 per pound.  In recent months the range was $3.15 to $5.45 per pound.

The last report we’ll mention here is the National Monthly Negotiated Grass Fed Beef Report.  These prices represent negotiated grass fed wholesale beef prices for a variety of cuts.  Ribeye steaks in April were reported to be $28.65 per pound slightly higher than the $27.79 per pound last April.  Ninety percent lean bulk ground beef was $16.20 per pound, a $6.24 increase over a year ago.  

This data, while perhaps not well known, should be a good resource for folks moving into the direct-to-consumer area.  The data allows you check your prices compared to some national average pricing trends and plan for pricing future products.  

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Anderson, David. “Grass Fed Beef Prices.” Southern Ag Today 3(22.2). May 30, 2023. Permalink