Cattle and Beef Prices Continue to Trend Upward

by Allen R. Williams, Ph.D.

Nothing should come as a surprise any more in the beef industry. Just when we think we have seen record highs for cattle and beef prices, along comes yet another surge. For the first time in history, fed cattle prices topped $172/cwt for commodity grain fed cattle, putting the gross value for an average fed steer at $2300. Boxed beef prices continued to climb with Choice cutout averaging $256.87/cwt and Select cutout averaging $243.67/cwt. USDA Choice Primal Rib jumped from $394.51 to $403.30 over the past weekend.

The futures market has surged as well with February and April 2015 contracts spiking up $20 since mid-August 2014. Carrying through to the retail beef side, the Beef Retail Price Composite (BRPC) set another new record high recently at $5.62/lb. That is up from the previous record high set in September 2014. Ground beef prices also set a new record high averaging $4.15/lb for 80% lean ground beef. The 90% lean ground beef was even higher at $5.97/lb. Out of all beef cuts, lean ground beef has made the biggest jump of all. For those who attended the 2013 Grass Fed Exchange Conference and heard Bill Helming speak, this should come as no surprise as it is very much in line with his predictions.

On the slaughter side of things, lower grain prices coupled with short cattle supply and record high feeder cattle prices have resulted in slaughter weights setting new record highs. The very tight supply of feeder cattle has incentivized feedyards to keep cattle on feed longer, thus adding additional weight. With prices for fed cattle in the $170 range, cost of gain for keeping cattle longer is not prohibitive. Average fed cattle live weights have now reached 1364 pounds. This is 18 pounds heavier than a year ago. Likewise, dressed weights are up to an average of 828 pounds, which is 21 pounds heavier than a year ago. The heavier slaughter weights are partially offsetting the decline in feeder cattle inventory. Total beef production from the past week was 468 million pounds, but this is down somewhat from the 500 million pounds produced in the same week last year.

On the heels of this, feedlot margins declined somewhat in November compared to here they were in October. Fed cattle margins were $144 per head last week compared to $209 per head just a month ago. Cash fed cattle prices were 23% higher than this time last year at $171.39/lb. However, with feeder cattle prices hitting new highs, feedyard breakevens based on last week’s placements were $176/cwt. Beef Packer margins improved by $6.00 per head, but overall margins were still in the red at an average $77.96/head. Packers are paying more for fed cattle but are struggling to move boxed beef cutout values up high enough to cover their procurement costs. Packers are paying approximately $130/head more than they were in September but USDA Choice cutout values have only improved $60/head.

On the slaughter side, total cattle slaughter was down more than 7% in 2014 compared to 2013. There was a precipitous drop in October 2014 compared to October 2013 with a staggering 9.2% decrease. Steer slaughter for the year to date was down 3.4% and is averaging 52.1% of total cattle slaughter this year compared to 50.1% last year. More steers being slaughtered compared to heifers, coupled with heavier carcass weights limited the drop in overall beef production to less than 6.0% compared to this time last year. Heifer slaughter is down 8.7% so far this year. In 2013 the initial numbers on heifers slaughtered appeared to be signaling a surge in retaining of replacement heifers. However, ongoing drought forced many to send those intended replacements to the feedyard. However, the prolonged decrease in heifer slaughter numbers in 2014 indicates a movement towards stronger heifer retention.

Similarly, cow slaughter is down as well with a 14.5% decrease in dairy cow slaughter and an 18.1% decrease in beef cow slaughter so far this year. This puts cow slaughter at a much smaller percentage of total beef slaughter compared with a year ago. Total cow slaughter is down 19.5% compared to a year ago. This is an indicator that a rebuilding effort is underway in the national cow herd. The two things to watch will be how fast herd rebuilding can occur due to record low cattle inventory and will critical areas of the country see alleviation of ongoing drought conditions entering into 2015.