We are approaching mid-year with feeder cattle prices at historic levels and showing little sign of slowing down. The question of what to expect in the second half of the year is on many minds. So far, 2014 has been in sharp contrast to the first half of 2013. About a year ago, feeder prices bottomed counter-seasonally in late May/early June. Feeder prices today are 50 percent or more above this time last year. Fed prices are currently about 24 percent higher than one year ago and Choice boxed beef is roughly 15 percent above the $200/cwt. level that it first achieved one year ago. It was just about a year ago, that feeder prices began the increases that have continued to today.
Many factors are quite different between the first half of 2014 compared to the first half of 2013. Most notably, perhaps, is the change in feed prices. In the spring of 2013, with feedlot cost of gain at record levels, feedlots could begin to see the prospects for a dramatic change in corn prices with the coming 2013 crop. Feedlot losses were severe enough that some feedlots essentially stepped out of the feeder market in the period from February until May, allowing feedlot inventories to drop until late summer and fall and thus softening feeder demand. At the same time, cow herd liquidation was still underway, supporting feeder supplies and limiting the decrease in beef production. Through May of 2013, cattle slaughter was down less than one percent and beef production for the year to date was even with 2012 levels. Heifer slaughter was down 3.8 percent year over year while beef cow slaughter was up 3.1 percent and dairy cow slaughter was up 4.1 percent at that point in the year. Continued drought and extremely tight hay supplies forced abandonment of heifer retention and resulted in more herd liquidation through mid-year 2013.
So far 2014 has been very different. For one thing, we are a year later with an even smaller herd and calf crop this year. Secondly, though drought conditions persist in some regions and even expanded until recently, larger hay supplies and improved forage conditions in other regions suggest that heifer retention and herd expansion are underway. Heifer slaughter so far in 2014 is down 8 percent and beef cow slaughter is down 13.8 percent along with an 11.5 percent year to date decrease in dairy cow slaughter. Compared to last year, relatively moderate feed prices and strong boxed beef and fed cattle prices allowed feedlots some positive returns in early 2014. The industry supply situation is significantly tighter now compared to this time last year. Total cattle slaughter is down 6.3 percent and beef production for the year to date is down 5.8 percent.