March 6, 2023
For the first time in several years it appears that all segments of cattle and beef markets are on the same page and responding to tightening supply fundamentals. The complex linkages across cattle and beef markets mean that the dynamics of market adjustments are relatively slow under the best of circumstances. Delays due to the pandemic in 2020 stretched into 2021 and drought impacts since late 2020 contributed to a delayed transition of fundamentals from feeder cattle markets, through fed cattle markets into beef markets.
Cattle numbers have declined for several years since the peak beef cow herd in 2019. Declining calf crop numbers (from the 2018 peak) should have led to peak cyclical beef production by 2020. Pandemic delays pushed beef production from 2020 into 2021. Drought liquidation in 2021 and 2022 led to further short-term increases in beef production. Record beef production in 2022 occurred four years after the peak calf crop. Drought the past two years resulted in additional heifer placements and caused early marketing of calves in 2022 that maintained feedlot inventories above year earlier levels until late in the year. Feedlot inventories have declined year over year for five consecutive months and will continue decreasing. Feedlot marketings and beef production were higher year over year in January but that appears to be changing.
Lower carcass weights and declining cattle slaughter have year-to-date beef production down 4.5 percent by early March. The decrease in cattle numbers since the 2018 peak calf crop has finally worked through the system. Cattle slaughter and beef production are expected to decrease for the balance of 2023 and beyond. With continuing drought conditions, it is not clear exactly how cattle and beef market timing will develop going forward, but the question is not one of whether beef production will fall, but rather how fast and how much it will fall in 2023.
The auction price for 500-pound steers in Oklahoma last week was $239.66/cwt., the highest price since September 2015. The record high price for 500-pound steers in Oklahoma was $312.72/cwt. in November 2014. The price of 825-pound steers last week was $181/cwt., the highest price since October 2015. The all-time peak price for these steers was $238.87/cwt. in October of 2014. The live 5-market average price of fed steers last week was $165.07/cwt., the highest fed price since April of 2015. Fed prices hit a record level of $171.38/cwt. in November 2014. Cattle prices are expected to continue trending higher in 2023 and new record cattle prices will happen, if not in 2023, at some point in the next two or three years.
Higher cattle prices will push wholesale and retail beef prices against beef demand, which remains strong but somewhat muted currently. There will be resistance to higher beef prices, but the reality of decreasing beef supplies will ultimately push beef prices higher. It will take some time for domestic and international demand to adjust to limited beef supplies. In the meantime, all the margins between cow-calf and consumer will be squeezed. The tightest pinch-point in this process will be when heifer retention begins in earnest to rebuild the herd. That will likely begin in late 2023 and continue through 2024 and perhaps beyond.
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