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Beef production surge punishing prices

Beef production surge punishing prices
Lighter weights and increasing currency in feedlots could help prices soon, but long-term trend remains down.

 

Large beef production is a major culprit in the lower cattle prices we're seeing these days, says David Anderson, extension economist for Texas A&M AgriLife extension service.

The drop has been steep. Texas-Oklahoma fed cattle prices averaged $139.05 for the week of March 20, 2016. A month later they averaged $126.87, which was down 9.1%. Live cattle moved lower to end the month quoted at $124, for a full 10.8% decline.

Anderson says beef production is made up of two factors:
1. The number of cattle slaughtered
2. Their weights

More beef: Total supplies of beef are increasing, so the long-term price trend is down. However, lighter weights and faster marketing offer some hope in the short run.

Steer and heifer slaughter in April 2016 was up an estimated 1.8% above year-earlier prices. The final daily slaughter data through April 16 indicated that while steer slaughter is above that one year ago, heifer slaughter is lower than in April 2015.

Anderson notes, too, that dressed weights continued to decline seasonally. Steer weights were the lowest of the year so far, at 878 pounds, and the lowest since July 2015. But they remained above a year ago by six pounds. Slaughter heifer weights increased by two pounds to 820 pounds, but except for the previous week, were the lightest since September 2015.

Therefore, the combination of the numbers and weight clearly pushed estimated beef production for the last five weeks to about 2.3 billion pounds, up 6.2% from last year. The 485 million pounds for the week ending April 30 was the largest weekly beef production since the week ending October 17, 2015.

Anderson adds that as rising beef production pressures fed-cattle prices, in turn it pushes feeder and calf prices lower.

Trickle down: In general, last week's pricing shows the trickle-down effect of falling fed-cattle prices

"But there are a few things that may provide some support to cattle prices going forward," he says. "One, it appears that cattle are being pulled ahead to market sooner. The number of cattle on feed more than 120 days has fallen below year-ago levels. Pulling cattle ahead can reduce the number ready for slaughter later in the spring and summer."

"Weights are declining seasonally" he added. "Beef by-product values have been increasing, up nearly $1 per hundredweight in the last two months. The live-to-cutout spread was the third largest weekly estimated figure, at $257 per head, going back to 1991."

Anderson says although these things may provide upside support for higher cattle prices soon, it's important to remember the long-term trend is for more beef production and lower prices as cattle numbers expand.

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