John Nalivka: Where will this cattle market take us?
June 23, 2016
As this week's paper arrives in the mail, the 4th of July weekend is staring us in the eye. This is typically the peak grilling weekend of the summer. However, as this key grilling weekend approaches, demand remains lackluster and beef and cattle markets continue to weaken. There has been plenty of discussion about all of the factors affecting the market this year and what it means to the outlook for calf and feeder prices. I have presented plenty of my own analysis at meetings and in print. But, at the end of the day, as I have been frequently asked over the past few weeks; where does that leave ranchers regarding calf prices this year?
Steer calf prices will generally range from $750 to $850 per head while feeder cattle will generally bring $1000 – $1,100 per head and cull cows will range near $1,000 per head. These prices compare to the record prices that pushed receipts to $1,500 per head for calves, $1,600 for yearlings, and $1,400 for cull cows.
While there are reams of data to analyze regarding the beef outlook, I think there are three key points to consider; 1) not just beef, but total meat supplies are increasing significantly this year and in 2017, 2) prices across the beef supply chain are coming off record prices, and 3) per head returns against cow-calf cash operating expenses, though down sharply, are still higher than historical averages.
Per capita total meat supplies will increase nearly 2 percent from a year earlier, and will be up 6 percent from 2014 when the industry was in a perfect storm to realize record prices. Beef production in 2014 was down 6 percent as liquidation pushed the inventory to a 60 year low. The supply situation has changed markedly. The U.S. meat and poultry industries are now back on trend of producing increasing per capita total meat supplies. While beef exports will increase about 7 percent this year that increase is compared to last year's sharp drop when the dollar strengthened and our export demand weakened.
Prices have already dropped sharply this year. I expect further declines but at the same time, I think producers need to keep in mind that the price forecast that I mentioned above look bad compared to the record of the previous two years. Historically, they still yield a positive margin against expected cash operating costs.