Category: Livestock Marketing

The latest Cattle on Feed report was released on Friday by USDA-NASS. June 1 total cattle on feed for feedlots with capacity of 1,000 or more head was estimated at 11.55 million head which was 2.9 percent below June 1, 2022. This marked the ninth consecutive month that total cattle on feed was lower than the same month of the previous year. 

The biggest surprise from this report was the larger than expected placements of cattle into feedlots during May which were estimated at 1.96 million head. Placements were 4.6 percent (86,000 head) above May 2022 totals which was above the pre-report average expectation of a 1.7 percent increase. This was the largest May placements total since 2020. 

Placements were higher across all weight classes except for the 900-999 pound group which was down 2.3 percent. Placements of cattle weighing less than 600 pounds were up 4.1 percent, 600-699 pounds up 9.3 percent, 700-799 pounds up 3.2 percent, 800-899 pounds up 6.5 percent, and over 1,000 pounds up 6.7 percent. 

Looking at regional placements, most of the overall increase was driven by Nebraska where placements were 13.9 percent higher than last May, and placements were up double digits in all weight categories. Drought almost certainly was a factor in the larger Nebraska placements. Placements in Texas were interesting because of the contrast between light and heavy weight placements. Texas placements of under 600 pound cattle were up 7.1 percent (10,000 head) while placements over 800 pounds were down 8.7 percent (10,000 head) as compared to May 2022.

Cattle marketings were reported at 1.95 million head which is 1.8 percent above a year ago. This was slightly higher than expected pre-report but within the range of expectations. 

Looking ahead, it will be interesting to watch where cattle on feed numbers go during the summer months. Cattle on feed numbers typically decline in the summer and reach their seasonal low point around August before beginning to expand again for the Fall. Just how low that low-point is this year, and the percentage of heifers, will be informative for discussions on cattle and beef supplies. 

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Maples, Josh. “Surprisingly Big Placements in the June Cattle on Feed Report.” Southern Ag Today 3(26.2). June 27, 2023. Permalink

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