Beef, fed cattle markets in summer doldrums
By CAROL RYAN DUMAS
Beef and fed cattle prices increased in anticipation of the holiday grilling season, but Memorial Day and the Fourth of July didn't live up to industry expectations and prices sank into the summer doldrums.
Packer margins are now flat, and feedlot losses are growing. Tight feeder cattle supplies, however, are putting cow/calf producers in the driver's seat, said Derrell Peel, livestock marketing specialist with the University of Oklahoma.
Prices for choice boxed beef shot up dramatically before Memorial Day, but have dropped since the Fourth of July, he said. Prices for choice boxed beef, which were above $200 per hundredweight for six weeks in May and June, are now about $189, likely leaving no margins for packers, he said.
Fed cattle prices have also slumped.
Prices vary regionally, but live fed cattle prices in the Southern Plains, which peaked in May at $129 per hundredweight, are now $121-$123. Feed prices are still high and with break-even in the $135 per hundredweight range, feedlots are losing about $175 per head, Peel said.
The prospect of larger-than-usual numbers of heavy placements being market-ready later in the summer and into the fall has exerted downward pressure on both fed cattle prices and wholesale beef cutout values, USDA reported in its July 17 Livestock, Poultry and Dairy Outlook.
While monthly fed cattle prices have been higher year over year since January 2010, except for February and March of this year, cattle feeding margins have been negative since May 2011, USDA reported.
Steady declines in fed cattle prices since the May peak have increased the likelihood of further losses to feedlots despite declining feed costs, the report stated.
"There are pretty serious losses still occurring at this point," Peel said.
With the indication that cattle slaughter and beef production have peaked seasonally, fed prices are likely at their summer lows, but relatively large levels of placement of heavy cattle might hold fed prices under $125 per hundredweight into the third quarter, he said.
However, with tighter supplies down the road as indicated by Friday's USDA National Agricultural Statistics Service cattle on feed report, fed prices are expected to move back into the upper $120s in the fourth quarter and could end the year near $130 per hundredweight, he said.
USDA reported cattle on feed for slaughter for feedlots with capacity of 1,000 head or more on July 1 is down 3 percent from a year ago and June placements into feedlots were down 5 percent from a year ago.
"Eventually, that translates to less beef production, too," Peel said.
Packers will likely suffer flat margins for the next month or so, but fewer cattle on feed and a tight calf supply has the potential for increasing prices, from boxed beef all the way down to feeder cattle prices, he said.
While cattle feeders have been losing money, they should get a break when the new corn crop starts comes in, with corn prices expected to be $2 per bushel lower by September, he said.
Prices for feeder cattle are rebounding and have strengthened in the last three weeks. The feeder cattle market struggled in the first half of the year, due to the record-high corn prices feedlots faced, but prices have jumped rather nicely to $150 a hundredweight for 700-pound steers and $168 per hundredweight for 500-pound steers, Peel said.
Peel expects good prices for feeder cattle to continue as supplies tighten significantly in the last half of the year, with cow and yearling slaughter decreasing sharply.
In general, cow/calf producers are in the driver's seat when it comes to supply, he said. The bottom line is it would take several years to expand the herd and increase beef supply. They shouldn't have to worry about markets or prices. The potential for profits in that sector are good for the next four to six years, but it will depend on how producers manage cost of production, he said.