Markets Processing

Low Inventories: What Else is Behind the Feeder Price Rise?

ANALYSIS – Record feeder cattle prices have been reached this month, supported by tight feedlot supplies and an expectation of increasing holiday demand.

23 October 2013

3 minute read

North America

Leading market analysts from the US have confirmed that feedlot numbers are ‘particularly tight’ at 7.2 per cent lower down on the previous year.

This comes amongst a degree of confusion in the absence of USDA data, which have since returned with the reopening of the government.

Instead, CattleFax and Urner Barry reports have been relied on for live steer and wholesale prices respectively.

This is according to agricultural analysts Steve Meyer and Len Steiner who revealed that last week's overall slaughter estimations are at 614,000, 3.8 per cent less than a year ago.

Mr Meyer and Steiner stated that cow and bull slaughter was 10 per cent lower and steers and heifers saw a 1.5 per cent drop.

“Live cattle futures have taken a step back after rocketing to contract highs on concerns that wholesale beef prices continue to trade close to year ago levels,” said Mr Meyer. “The choice cutout increased only modestly on Friday and was pegged at $196.3/cwt while the select cutout dropped by $1.74/cwt from the previous close.”

“There is little question that live steer values have moved up in the last couple of weeks,” he added. “Futures expect steer values to add another $4/cwt in November and December.”

The rise later in the year is expected as demand surges around holiday buying. Len Steiner added that, as well as a lack of animals, lower feed costs and the ban on Zilmax in feedyards mean beef supplies continue to be limited.

Moreover, beef buying is expected to increase over Christmas.

Mr Steiner said: “Consumers that shifted more of their dollar purchases to chicken and pork during the year also will likely be more willing to splurge on beef in their home celebrations.

“So beef prices should be moving up in order to sustain the expected gains in live steer values.”

Supply shortage is expected to cause a five per cent drop in per capita beef supplies for US the rest of the year and into 2014, Chris Hurt, an Agricultural Economist at Purdue University has predicted.

Mr Hurt expects cattle to be placed in feedlots at lighter weights in light of recent high cattle values and $4.32 per bushel corn around mid-October.

This should mean feeders target heavier weights in the new year, as feedlots and packers are hit by unused capacity, a 'fixed-cost', said Mr Hurt.

"The combination of excess capacity and high fixed costs means that both will tend to bid strongly for the limited cattle numbers," Mr Hurt said. "Ultimately, this strong bidding gets back to the brood cow producer in the form of record-high calf and feeder cattle prices.

"Unfortunately, these conditions also mean that the margins for both packers and feedlots, while better than in the past year, will still be narrow and likely less than their total costs."

And while the feeder and packer sectors are restricted by market dynamics, the weather will decide which states get online with herd expansion plans.

"If beef cow numbers begin to slowly turn upward in 2014, downsizing of cattle feeding capacity might end in 2015 and the packing industry by 2016," Mr Hurt said. "The years beyond 2016 should provide some expansion for the beef cattle industry, but still a slow upward growth."

He concluded by summarising the herd growth outlook as not highly optimistic, but that a 'slow upward trend' is better than declines.