– Dr. Kenny Burdine, Livestock Marketing Specialist, University of Kentucky
Over the last couple months, the focus of most of my questions has shifted from “how long will these prices last” to “how low can these prices go”? To put the recent market drop in perspective, the October CME© Feeder Cattle futures contract, which was trading around $220 for most of June is now trading in the mid-$190’s. Based on state average prices, weaned calf prices have lost more than this on a per cwt basis in many markets since early summer. I really don’t think the fact that calves are cheaper has surprised that many people, but I do think many (including myself) have been surprised by how quickly things have changed. And, calf markets usually don’t reach their seasonal lows until October or November.
My August update was largely focused on the July 1 Cattle Inventory report, which showed continued expansion of the US beef herd. While this is certainly at play in the current markets, I think it is a small factor at the present. For the most part, the growth that we have seen in beef cow inventory has not had time to impact beef production very much. However, cheaper feed and the resulting heavier slaughter weights are starting to change the beef supply picture somewhat. At the same time, production of pork and poultry are growing much faster. USDA-ERS, in their August Livestock, Dairy, and Poultry Outlook, estimated pork and poultry production up 8.1% and 4.5% respectively for the second half of 2015. These factors will continue to pressure beef prices in the coming months.
It will be interesting to see if the lower calf prices have any impact on the pace of expansion this fall. July 1 heifer retention estimates suggested continued expansion and beef cow slaughter continues to run below last year’s very low levels (see chart below). Despite the fact that calf prices have softened, they remain at profitable levels for most cow-calf operators. So, while the recent drop in the market may slow the pace of expansion slightly, most cow-calf operators are still likely to sell calves this fall on a very strong market by historical standards. The largest impact from lower calf prices may be what is paid for bred heifers this fall as those prices tend to move together. But, the big picture message is that the calf price environment is changing and producers should be thinking about managing their operations in a decreasing price environment the next several years. As we continue to grow this cow-herd, we will also likely continue to see lower calf prices until the incentive to expand is no longer there.
Data Source: USDA-AMS and USDA-NASS
Livestock Marketing Information Center