For most of 2012, high feeding costs and low milk prices have driven year-over-year increases in federally inspected weekly dairy cow slaughter. Federally inspected beef cow slaughter has also increased, but more erratically and mostly in a typical seasonal pattern, since mid-April 2012. Furthermore, while beef cow slaughter has also remained generally below 2011 and 2010 levels, it has been heavy relative to the January 1, 2012 cow inventory, but the drought-induced beef cow slaughter that occurred in 2011 was heavier relative to the 2011 cow inventory. As a result, total federally inspected cow slaughter is below year-earlier slaughter for most weeks in 2012. Further, slaughter cow prices have generally declined since their May 2012 peak, but while currently below that peak, they remain above year-earlier prices on a weekly basis.
While prices for feeder cattle in 2012, especially the heavier cattle, have been generally well above prices for corresponding periods in 2011, in July they declined to levels that are about even with same-month 2011 levels. This is largely due to drought-reduced pasture availability and the impact of high feed costs on cattle feeding margins that have been negative since April 2011. At the same time, prices for lightweight feeder cattle began increasing relative to heavyweight cattle, motivated in part by the positive outlook for feeder cattle demand in 2013 and prospects for winter pasture. However, the extent of demand for feeder cattle will depend on the final outcome of this fall’s corn harvest.
Demand for heifer calves for both stocker programs and rebuilding cow inventories could increase if precipitation is enough this fall to enable cool season pasture development this winter and if prospects improve for pasture growth in 2013. Retaining heifers for rebuilding cow inventories reduces the inventory of feeder cattle available for placement in feedlots, which would support feeder cattle prices. This would also likely reduce future fed cattle supplies and, ultimately, beef production, beginning in late 2013 or 2014. Any heifer retention over the next few years would likely have an adverse impact on beef supplies until 2015 or later, when cow inventories could again reach a level that would provide enough feeder cattle to produce supplies of beef at or above current levels.
Fed cattle prices have begun increasing seasonally since July lows. In addition, some current industry anecdotes suggest packers may be having difficulties finding enough finished cattle to meet their needs, which should be supportive of prices, except that packer margins will decline from the higher fed cattle prices combined with static or declining wholesale values. However, fed cattle prices could be pressured if feedlot managers are not marketing finished cattle in as timely a manner as previously thought. Evidence supporting a possible buildup includes higher dressed weights, a larger number of cattle on feed for more than 120 days, and higher dressing percentages. For instance, while dressed weights are increasing seasonally, they are well above year-earlier levels and are not likely to peak until around mid-October when they traditionally peak. Another indicator is the record number (since August 1996) of cattle on feed for 120-plus days on August 1, which—in addition to any remaining calf-feds--may indicate larger than usual numbers of heavyweight fed cattle that could be marketed over the next few months. These numbers could be a result of the many heavy feeder cattle placed earlier this year and the large numbers of under-600-pound feeder calves placed in late 2011. A third indicator is the 5-day average dressing percentage, which has been above year-earlier and recent historical levels for most of the summer and, despite the driving forces of the drought, runs counter to the traditional logic associated with abbreviated feeding periods during periods of high grain prices.
Weekly wholesale cutout values have recovered somewhat since their lows in late-July/early August 2012 and are above year-earlier values. Despite this, improving fed cattle prices have pressured packer margins, which have deteriorated recently. Part of the reason for the improved cutout values is that demand for some middle meats and other cuts helped move monthly retail Choice beef prices higher in July. While Choice retail values improved slightly in July, the All-fresh beef price set yet another record at $4.71 per pound. However, both retail Choice and All-fresh beef prices retreated slightly in August to $4.95 and $4.70. While the demand for ground products appears to be providing ongoing price support to the All-fresh beef price of which it is a component, it does not seem to be sufficient to completely offset the negative pressure associated with the end of the summer grilling season.