Supply and demand challenges continue for beef industry
Wednesday, June 27, 2018
As projected by industry analysts, supply pressures continue to build in beef markets, with the uncertainty and volatility that comes with a potential trade war only increasing concerns in the second half of the year.
Beef trade in early 2018 has been very supportive to cattle and beef markets but this could change going forward, cautions Derrell Peel, Oklahoma State University Cooperative Extension livestock marketing specialist.
“Beef markets may be directly impacted in terms of exports but the more significant impacts may be the indirect result, such as reduced pork exports and increased domestic supplies of competing meats,” he said. “A multitude of markets are likely to be affected and the impacts will pulse through markets in a complex set of primary and secondary effects that is difficult to foretell but is likely to be negative.”
Peel points out there are a variety of supply and demand factors to watch in the second half of the year. Beef production will be determined by slaughter rates but even more by carcass weights moving forward. Drought conditions do not appear to be causing significant herd liquidation at this time but the threat is still there.
“Further slowing of heifer retention and herd growth, in part due to drought conditions, continues to add to female slaughter and could continue through the end of the year,” Peel said.
To date, beef production so far this year is up 3.6 percent on larger cattle slaughter and increased carcass weights. Year-to-date cattle slaughter is up 3.8 percent driven by increases in female slaughter.
“Heifer slaughter is up 8 percent year over year and cow slaughter is up 8.1 percent so far in 2018,” Peel said. “Beef cow slaughter has increased 12.2 percent and dairy cow slaughter 4.5 percent compared to this time last year.”
However, steer slaughter increased a minimal 0.1 percent compared to this time last year.
Cattle carcass weights are up year over year after dropping sharply in 2017. Overall carcass weights increased by about 5 pounds compared to this time last year. In terms of specifics, steer carcass weights are up nearly 7 pounds and heifer carcass weights have increased more than 8 pounds compared to this time last year. Cow carcass weights have increased nearly 8 pounds compared to last year.
“Steer and heifer carcass weights have bottomed seasonally and will increase to seasonal peaks in the fall but the question will be how much and how fast will the seasonal increase in carcass weights be compared to last year,” Peel said.
Beef production is typically larger in the second half of the year and continued year-over-year growth in beef production is expected to contribute to annual beef production growth of more than 4 percent year over year in 2018.
In 2017, unexpectedly strong domestic and international beef demand provided extra support for cattle and beef prices in the face of growing beef supplies. To some extent that has continued in 2018, though not as pronounced as a year ago. After holding quite firm through May, boxed beef prices were under pressure into mid-June with Choice boxed beef price dropping about $5 per hundredweight recently.
“Large beef supplies are weighing on markets and the challenge may grow moving into the summer doldrums between July 4 and Labor Day,” Peel said. “However, relative fed cattle supplies are expected to tighten in the third quarter.”
Fed cattle prices have declined seasonally but are generally holding better than many analysts projected. In early April, the June Live Cattle futures dropped under $100 per hundredweight but have since traded as high as $110 per hundredweight, and as of this writing are trading at about $108 per hundredweight.
“Of course, June isn’t over and the next couple of weeks could have a significant effect on commodity markets as the reality of a trade war settles on markets,” Peel said.
Feeder cattle prices have declined seasonally from their spring peaks but have remained quite robust thus far in 2018.
Oklahoma is the nation’s fifth-leading producer of cattle and calves, according to USDA National Agricultural Statistics Service data.
The Oklahoma Cooperative Extension Service is one of two state agencies administered by OSU’s Division of Agricultural Sciences and Natural Resources, and is a key part of the university’s state and federally mandated teaching, research and Extension land-grant mission.