Market impacts: Seasonal to lower prices expected this fall for cattleWritten by Gayle Smith
Whitman, Neb. – Beef producers can expect to see a few more years of declining cattle prices as the U.S. herd rebuilds its numbers, an agricultural economist told producers during the Gudmundsen Sandhills Laboratory 17th Annual Open House in Whitman, Neb.
Jessica Sampson, who works with the Livestock Marketing Information Center in Lakewood, Colo., said producers can expect less for their cattle as long as herd growth continues.
“Cattle inventory is projected to increase Jan. 1,” she said.
“Heifer slaughter year-to-date is actually one percent below last year. However, we have seen more heifers coming to the packer in recent weeks, compared to a year ago,” she continued.
Cull cow prices have also dropped significantly.
“In 2014-15, we kept a lot of cows in the herd longer, and now we’re sending more of those to the sale,” Sampson explained.
“We have slaughtered 10 percent more cull cows this year than at the same time last year,” she added. “We expect to see the seasonal decrease in prices of cull cows in October and November, so producers may want to plan ahead.”
Sampson said a 4.5 percent increase in annual production is expected this year, and another four percent increase is predicted for 2017.
“We have a larger inventory that is producing more calves,” she explained. “With four quarters in a row of lower prices, it may be an indicator to producers to slow down herd growth.”
Despite declining prices, producers are still seeing returns over $100 per cow. With estimated cow/calf costs more than $800 in most operations, it is realistic to expect these costs to decline because of corn, beans and wheat supplies, Sampson said.
Pasture rent will also need to decline to be more in line with the market, she noted.
With feedlots still struggling to get out of the red, Sampson sees feeder cattle prices at historically normal levels this year. The U.S. is carrying two percent more cattle on feed compared to last year, which is consistent with the 3.5 percent increase in cow inventory. Fat steers are selling around $1.19 a pound in the southern plains, she reported.
“For the most part, we expect to see seasonally normal price patterns this fall, although we expect a tightening in the fat cattle supply,” Sampson reported. “We may see a slight increase in the fourth quarter because we don’t expect the meltdown that we saw last year.”
She continued, “The conditions are entirely different. For one thing, feedlots are very current on their marketing right now. There are no backed up, overly heavy or overly fat cattle on hand like last year. The cattle feeders also have a better margin this year.”
Based on the fourth quarter and annual average, Sampson told producers to take what they sold calves for last fall and deduct 15 to 20 percent from that. She sees prices in the Southern Plains being around $1.72 for 500- to 600-pound calves, and in the high $1.40 range for 700- to 800-pound yearlings.
“We are projecting another three to four percent decline in 2017 on an annual average basis, which is reflecting the increase in the cattle supply,” she said.
Producers at the meeting expressed concern about the agreement to allow Brazil to import fresh, chilled beef into the U.S. Sampson explained that Brazil, like dozens of other countries doing business with the U.S., must adhere to a tariff rate quota system that limits the volume of beef that can be imported under this system.
“That limit is 65,000 metric tons on a first-come, first-serve basis,” she said. “After that quota is met, a 26 percent tariff will apply. At that point, it will be too expensive for them to send beef here. Because of this, I don’t think we will be seeing a huge influx of Brazilian beef coming into our market.”
Sampson also told producers that Brazil has market access to Russia and China, which are big markets for them.
“I don’t see them shifting their supply from those countries to the U.S.,” she explained. “They haven’t shipped any fresh or chilled beef here yet.”
One producer asked Sampson what impact Brazil could have on the cull cow market.
“The cull cow market is down two to seven dollars, and the sale barns are blaming Brazil,” the rancher said.
Sampson replied, “It is possible that lean grind imports could impact cull cow prices, but I would be hard-pressed to blame Brazil at this point. I think cull cow prices are down because more are being marketed. Brazil is definitely a concern though.”
Currently, most of the 90 percent lean grind imports into the U.S. are coming from Australia, but Sampson said as U.S. beef production increases, she sees those numbers declining.
“In 2016, that number was down 10 percent in the first half of the year. As we continue to increase production, I expect that number to continue to decline into next year,” she said.