Cattle carcass weights are at record levels and continue to increase counterseasonally. As of the week ending October 24th, average steer weights were reported at 927 pounds (+3 percent year over year) and average heifer weights at 841 pounds (+2 percent year over year). Several factors have contributed to the rapid increases in cattle weight gain. First, the costs of feeding cattle have become considerably lower and there is excess capacity in the feeding sector. Second, the number of cattle placed during the first through third quarters has remained well below year-prior levels, giving feedlot owners more incentive to keep animals on feed longer to extract extra revenue for each additional pound of weight gain. The result is heavier animals being marketed and slaughtered. Last, due to favorable pasture conditions, animals have been placed in feedlots at heavier than normal placement weights at over 800 pounds, as reported in USDA NASS Cattle on Feed. The bottom line is that the gains in cattle carcass weights have helped to partially offset commercial beef production declines amid tight cattle supplies, a trend expected to continue during the remainder of 2015.
Beef-processing margins continue to deteriorate. Even though wholesale beef prices have increased from lows posted in October, prices still remain well below last year. At present, beef demand appears fragile; weak interest in the ground beef complex and sharp drops in the value of byproducts such as hide and offal continue to weigh on packers’ operating margins. Packers are attempting to support their margins by constraining front-end supplies to force the live cattle market lower. So far this year, beef packers have remained disciplined with this strategy when margin pressures arise. However, seasonal trends suggest that beef cutout values should start to move higher post-Thanksgiving, potentially improving beef processing margins.