October live cattle futures plunged to 120 cents per pound in late September, the lowest level for a nearby futures contract since July 2013. Nearby futures fell more than 50 cents per pound from the late-2014 peak above 170 cents.
While prices turned down from last season’s high in conjunction with an increase in cattle numbers, the recent breakdown has largely been fueled by weakening beef demand as retail buying interest shifted to lower-cost competing meats. Export demand also has softened. Recent data show beef exports through August down 12% from a year ago. At the same time demand was flagging, carcass weights shot up to record levels, partially offsetting lower cattle slaughter.
Beef cutout values have fallen sharply along with fed cattle prices. The Choice cutout is down 43 cents per pound from the late-summer high and 62 cents below the all-time high last spring. Beef prices continued to soften this week, but lower prices seem to be sparking increased buying interest with the Choice cutout closing in on 200 cents per pound.
Live cattle futures became deeply oversold during September’s relentless decline. Prices finally staged a recovery rally this week. December futures bounced back from a low near 128 cents on Oct. 1 to a high so far this week of near 138. We expect the early-October low to mark a major low for prices that should hold for the next several months. Look for near-term upside for December futures to the 140-141 area.