Key numbers in Friday's USDA Cattle on Feed Report came in very close to trade expectations. The Nov. 1 feedlot inventory was a fraction of a percent higher than traders expected. October marketings were a tad below trade expectations.
Some observers may construe those figures as a bit negative on Monday's trade. The differences are small enough that other factors, such as how this afternoon's fed cattle trade plays out, may have a bigger influence on Monday's futures.
As of midday a small number of cattle traded in Nebraska at $131.50 live and $207 dressed. Those prices would be 50 cents to $1 lower than where the bulk of sales in the region took place last week. The live sales would be 50 cents higher than limited southern Plains sales on Thursday at $131.
Looking at the numbers
USDA tallied October placements up 9.8% from last year. That was just a tad below the average trade guess of up 10%. On the surface, one might conclude beef supplies are on the rise. April May 2014 cattle slaughter could slaughter could end up a bit higher than this year's slaughter. However, no surge in beef supply is coming.
USDA pegged the Nov. 1 cattle on feed inventory at 10.6 million, down almost 5.8% from a year ago very near the average trade guess. The cattle on feed inventory has been below the same month a year ago for 15 straight months. It's quite a stretch to think heavier weights can offset lower numbers to hold beef production near steady. Plus feed lot numbers will tighten further as solid cow-calf profits lure cow-calf producers to hold more heifers to expand breeding herd.
The bottom line is consumers, who might think lower priced retail beef is coming, are mistaken.
October fed cattle marketings of 1.856 million were up just over 1% from last October. Marketings were a tad less than the average trade guess.
Record-high prices likely in 2014
The counter-seasonal behavior of cattle markets this fall indicates the transition that is occurring in beef and cattle markets. The fourth quarter of 2013 provides insight into the general expectations for markets in 2014. Cattle slaughter for the year to date is down 1.7%, but is down an average of 3.6% in the last four weeks. Though beef production is down only 1.1% for the year to date, it is down an average of 2.9% the last four weeks. Both cattle slaughter and beef production are expected to decline for the remainder of the year bringing fourth quarter cattle slaughter down over 5.5%, year over year, and beef production down over 5 %.
For 2014, Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist, expects cattle slaughter decrease roughly 7% year over year leading to 6.5% less beef production for the year.
On Tuesday, choice boxed beef prices dipped below $200 per cwt for the first time since Oct. 22. Over the last four weeks and fed cattle prices have averaged above $130 per cwt.
Both of these prices could average at or above these levels for the entire year of 2014, with spring peaks of $215 or higher for choice boxed beef and fed cattle prices approaching $140 as a spring top.
All eyes will be on demand. Current expected beef supply will certainly support even higher prices than these if demand is sufficient.
Feeder cattle prices have strengthened this fall to the highest levels of the year. Heavy feeder prices are at record levels and, while calf prices have not quite exceeded the spring 2012 record price levels, they surely will in the spring of 2013, baring something unforeseen. Feeder supplies are no doubt tightening this fall with a smaller 2013 calf crop, fewer feeder cattle imports in 2013 and accelerating replacement heifer demand this fall. The 2014 calf crop will be as small, or smaller, than this year; feeder imports are likely to remain low; and replacement heifer demand will remain very strong as long as forage conditions are favorable.
Herd expansion appears to be underway
Demand for breeding females and replacement heifers is very strong this fall. Replacement heifer demand that emerged about a month ago in the Northern Plains, has now spread to much of the central part of the country with numerous reports of lightweight heifers selling at prices well above steer prices.
Last week in El Reno, Okla., several sets of heifers sold in the weekly feeder auction as replacements; including a market-topping set of 668 pound heifers at $208.55 per cwt. ($1393 per head) and another set of 560 pound heifers at $240 per cwt. ($1344 per head). Two sets of four-weight heifers sold for over $220 per cwt.
At the Northwest Cattlemen's Association fall replacement sale last week in Woodward, Oklahoma, bred heifers ranged from $1675-$2250 per head; young to middle-age bred cows ranged from $1,350 to $2,500 per head; and cow-calf pairs from $1,950 to $3,000 per pair.
Female demand will certainly be as strong, if not stronger, in the spring, once again, assuming that forage conditions continue to look favorable.