The transition to bigger beef supplies (and psychologically to the idea of bigger supplies) that began impacting cattle markets in 2015 continued in 2016. Markets adjusted down, including a brutal, fear-driven crash in markets in the third quarter, followed by a significant rally in the fourth quarter. Fed cattle prices have recovered 12 to 15 percent since mid-October while feeder cattle are up 10 to 12 percent. Calf prices have increased about 25 percent since the October lows.
Feedlots have marketed cattle very aggressively since February resulting in higher than expected slaughter rates. Steer slaughter has not pulled back so far in the fourth quarter, as expected, and is up 7.2 percent for the year to date compared to last year. Steers on feed in feedlots as of October 1 was down 1.4 percent from one year ago, indicating that feedlots have pulled cattle, especially steers, ahead; thereby tightening future supplies. As expected, heifer slaughter is up 3.5 percent year over year so far this year with sharply higher heifer slaughter rates in the second half of the year more than offsetting decreased year over year heifer slaughter early in 2016. Beef cow slaughter is also up as expected this year, with the year to date total up 13.4 percent. Despite this sharp increase in year over year beef cow slaughter, the 2016 net herd culling rate is projected at less than 8.5 percent, less than average and consistent with modest herd growth for the year.
Beef production increased more than expected in 2016. Higher than expected cattle slaughter in 2016 has resulted in projections of annual beef production revised upwards several times during the year to the current estimate of 5.8 percent more beef than 2015. Average cattle carcass weights have been down year over year since May. Steer and heifer carcass weights, though down from last year’s record levels, have remained higher than expected this fall due to excellent feeding weather into mid-November. Carcass weights should fall seasonally in the remaining weeks of the year, particularly as some colder weather impacts are reflected in the data.
Beef imports are down in 2016 while beef exports are up. This helps moderate the large increase in beef production this year reducing the supply pressure on the domestic market. Nevertheless, per capita U.S. beef consumption is increasing in 2016, the first sizeable year over year increase in more than a decade. Per capita beef consumption is projected at 55.5 pounds in 2016, up 2.6 percent from one year ago. Pork and poultry production and consumption are up as well in 2016, adding to the total meat supply pressure in beef markets. Retail beef prices in October were 7.5-8 percent below year earlier levels while retail pork prices were down nearly 6 percent and broiler prices were down nearly 4 percent year over year. Record cold storage inventories in October are indicative of the supply challenges for beef markets but, in general, it appears that the unexpectedly large beef supplies in 2016 have moved through retail grocery, HRI (hotel, restaurant and institution), and export market channels fairly smoothly this year. Additional beef production is expected in 2017 but with a smaller increase than in 2016. Growing cattle inventories and beef supplies resulted in more cattle and beef market transition and a fair amount of heartburn along the way but most of the transition appears to be complete as 2016 wraps up.