USDA released the October Cattle on Feed report on Friday, October 25th. The most anticipated number in the report was the quarterly number of heifers on feed. Once per quarter, the report includes a breakdown of the number of steers and heifers on feed. The heifers on feed have been some evidence of any herd rebuilding beginning. The report indicated 40,000 fewer heifers on feed October 1 than last October 1. That is less than one percent below last year. It is the second largest number of heifers on feed for October 1 in the data going back to 1996.
The continued large number of heifers on feed does not indicate much herd rebuilding in the works. The drought monitor map indicates some drought across most of the country likely reducing some enthusiasm for heifer retention. But, on the other hand, longer feeding periods mean that heifers are on feed longer, which would keep the number on feed higher. A few more spayed heifers have been imported from Mexico this year than last, also contributing to more heifers on feed.
Now for the headline numbers. Feedlot marketings in September were two percent larger than the year before. That translates to almost 2,000 head per day more than last year. Placements were two percent smaller than a year ago. More marketings and fewer placements resulted in the total number of cattle on feed being 4,000 head fewer than last October 1. The number on feed was less than one-tenth of one percent below a year ago, so not much really but, it was the first month with fewer cattle in feedlots since June. All in all, the report did not offer much of a surprise.
Most people have likely seen the news that McDonalds is rolling out, for a limited time, a Chicken Big Mac. Some of you, of a certain age, might be singing the words in your mind now: “two all-beef patties, special sauce…” A question on many cattle producer’s minds has been “how long will people keep buying beef at record high prices?” If beef prices are higher relative to chicken prices might people begin to buy more chicken? Those are great questions about beef demand because relative prices matter. We would expect some changes in purchases away from beef as it becomes relatively more expensive. I don’t purport to know the goings on in McDonald’s as they create strategies to build their business but, we can look at some relative prices in the wholesale meat market to shed some light on the input price side.
In this case, we can compare wholesale chicken breast prices to beef trimmings prices to look at relative changes over time that might lend some support to trying a new menu item. There are several data series that could be used to capture the longer-term trends. On the chicken side we can use line run chicken breasts or boneless, skinless breasts. On the beef side, a number of different lean-to-fat ratios for trimmings could be used. This example uses line run chicken breasts and 81 percent lean beef trimmings.
The price of line run chicken breasts was only 34 percent of the price of 81 percent beef trimmings in late August 2024. The only time in the last 15 years that chicken breasts approached a lower relative value compared to beef was in the Summer of 2020. The trend over the last couple of years has been for chicken breasts to decline in value relative to beef trimmings. Much of ground beef comes from culled cows and cow prices have increased dramatically as the cow herd has declined in number. Lower chicken prices create incentives to try some new chicken-based menu items.
Live cattle and meat prices are quoted in dollars per pound or cwt. But, a restaurant has to put together a meal, a plate, or a dinner that hits a price point that people want to buy. Cheaper chicken relative to beef creates opportunity for new items to help restaurants reduce their costs. Beef prices are likely to remain relatively more expensive than chicken for some time to come.
We are six weeks away from 2024 Thanksgiving but it’s not too early to think about the meals that may include turkey. Here is some pertinent turkey information as we are preparing for the end of the year celebrations. One of the first considerations is production, a key part of turkey supplies. The 2024 federally inspected turkey production (weekly), is shown in Figure 1. Year to date, turkey production is running 3.29% below 2023 levels and 6.44% less than the five-year average (2018 – 2022). While lower production is usually a cause for price concerns, that is not likely to be the case this year as turkey prices have remained lower than 2023 throughout 2024.
Turkey in storage is another important consideration in turkey supplies for Thanksgiving and Christmas holidays. As seen in the in Figure 1, turkey processing occurs throughout the year with an increase in late October and early November. Cold storage is important in managing the supply of turkeys and to ensure that adequate supplies are available for the end of the year demand. Figure 2 indicates that all turkey in cold storage for 2024 is 2.1 percent higher than in 2023, but 8.9 percent less than the 2018 -2022 average. Digging a little deeper in the cold storage data indicates that while there are 1.1 percent fewer tom turkeys, whole hens in cold storage are up 4.4 percent.
With 2024 turkey production running only slightly lower than last year’s production and quantities of frozen turkey in cold storage above 2023 levels, what will that mean for turkey prices in 2024? The 2024 fourth quarter wholesale price projection for an 8 – 16 pound frozen turkey hen is forecast to be $0.95 cents per pound, wholesale. This is 5.75 % less than 2023 prices ($1.01) and 47% less than fourth quarter prices ($1.78 ) in 2022. Like usual, there will be plenty of turkeys for Thanksgiving dinner. But, you might look for deals and specials and shop early to make sure you get just the right bird for your holiday table. In conclusion, it’s looks to be a good year to enjoy turkeys for the holidays.
The beef cow inventory is at a sixty-three-year low. Tight supplies have driven cattle markets and calf prices have increased by roughly $1 per lb over the last two years. Limited heifer retention and beef cow slaughter exceeding 10 percent of beef cow inventory for the year indicate that beef cow numbers will be even lower in 2025. Cowherd expansion will happen eventually but, there appears to be little evidence that producers have an appetite for that currently. For the cow herd to grow, we need to have the 3 Ps of herd expansion at the cow-calf level: profit, pasture, and patience.
The first P is probably the most obvious – profit. There will be no interest in cowherd expansion without money being made at the cow-calf level. While profit has been there recently, it is important to remember that these strong calf price levels are relatively new. We actually went from November 2015 to February 2023 (7 years and 4 months) with the state average price of a 550 lb medium / large frame #1-2 steer in Kentucky being under $2 per lb. Coming out of that challenging 7-year period, I think a lot of cow-calf operators have been cautious and guarded. Just as importantly, a lot of costs are substantially higher now than they were ten years ago, so comparing current calf prices to historical calf prices is misleading. Still, I think current returns at the cow-calf level are sufficient to see heifer retention if the other two Ps fall into place.
The second P is pasture, and I am using pasture broadly to describe forage/feed availability. While profit may be the first driver of expansion, no level of profit can make it rain, and limited pasture and hay supplies can nix any interest in expansion. As a recent example, drought was so widespread in the US during 2022 that expansion would have been highly unlikely, regardless of calf price levels. Both hay supplies and pasture and range conditions have improved since 2022, but a lot of areas have been dry this year, including my home state of Kentucky.
The final P is patience, and I think this may be the one that is most lacking in the cattle industry right now. When a farmer decides to expand the size of their cowherd, they are trading income from the sale of heifers today for a stream of income from additional calf sales in the future. Weaned heifers are valuable in 2024 and passing up that income in the short run is difficult. Developing heifers is also costly and is an expense that is incurred well before additional calves can be sold. These same factors were largely present when our last expansion began in 2015, but interest rates were considerably lower than they are today. Higher interest rates increase the cost of production and also increase the preference for income today, rather than in the future. Put another way, patience is at a premium in higher interest rate environments like the present.
At some point, the three Ps will line up and herd expansion will start. When that will happen is a difficult question to answer, but it is safe to say there are no signs of heifer retention right now. Limited heifer retention, combined with cow slaughter levels, suggest that another decrease in beef cow inventory is almost certain when the January 2025 estimates are released. So, supply fundamentals are encouraging and should continue to support calf prices next year. Many are also expecting some reductions in interest rates over the several months, which may factor into this decision at the producer level.
If weather cooperates, I do think increased heifer retention could be seen in 2025, but it is important to remember that this would just be the first step towards expansion. And the initial impact of heifer retention is actually a tightening of calf markets as those heifers are held back. There are always risk factors out there, but I remain optimistic about the next couple of years largely because cattle supplies are tight and likely to get tighter. We are not seeing signs up expansion yet, so all we can do is watch for the 3 Ps!
The summer and fall months are when a majority of producers are selling spring-born calves or yearlings from last fall. Due to the increase in supply of calves, prices typically decline during these months as demand from feedlot buyers is more easily met than in the spring. In Florida and nationwide, we started seeing this decline in prices a little earlier (April), which is partly due to the market responding to the outbreak of HPAI H5N1 in dairies, earlier trader’s recession fears, and more fed beef production than last year. However, prices still remained well above 2023 levels. Going into the summer months, as mentioned in a previous SAT article, prices followed the seasonal trend of declining in the summer and fall.
Figure 1 shows the average monthly price index for 450-500 lb steers in Florida from 2018-2022. This figure is simply a visual to show how we know the current dip in prices is normal for this time of year. The price index (blue line) shows the relationship between each month’s average price and the annual average price. When the price index is above 100%, that means prices in that month, on average, are higher than the annual average, such as in the spring. When the price index is below 100%, that means prices in that month, on average, are lower than the annual average, such as in the fall.
Now, Figure 1 only represents 2018-2022, not 2023 when prices were transitioning from a low point to a high point. Figure 2 shows how this transition period did not follow the typical seasonality trend (orange line). Prices continued rising into 2024, but then began falling as previously mentioned and much like we saw in 2015. However, the difference to notice between 2024 and 2015 is inventory levels and the rate of expansion (Figure 3). In 2015, expansion had already started when prices were at the levels we are seeing today. There was no incentive for prices to climb back up after the typical dip in the fall. In the current market, we have not started expanding and have already hit new record-high calf prices. This indicates that while we are experiencing the effects of seasonality this year, it is not expected that we are headed for a continuous low level of cattle prices for quite some time.
Figure 1. Average Monthly Price Index for Florida Steer Calves
Figure 2. Average Monthly Prices for Steer Calves
Figure 3. Beef Cow Inventory and Monthly Calf Prices
