Cattle prices have strengthened since the beginning of 2017. So far this year, beef demand has been strong both by domestic customers and foreign buyers. That demand has fed-back to strong demand for fed cattle by packers. Cattle feeders have been willing sellers because they have been making profits in recent months and the “market structure” has supported turning-over their feedlot inventories. By market structure we refer to two keys. First, deferred futures prices have been indicating sharp price drop-offs. Second, the cost of feeder animals has made replacing animals currently on-feed rather attractive. The feeder animal cost profile and return to profitability are in stark contrast to the last few years which tended to delay marketing of slaughter ready cattle. The rate at which fed cattle have been marketed in recent months provided a foundation for recent increases in U.S. cattle prices.
As shown in recent USDA-NASS Cattle on Feed reports, feedlot marketing’s have been aggressive. March marketing’s increased by 9.5%, year-over-year, and was 8.1% above the prior 5-year average (2011-2015). For the first quarter of this year, marketing increased 7.8% and 2.1% compared to 2016’s and the 2011-2015 average. In recent months, year-over-year increases in animals placed into feedlots and marketed have largely offset. For example, even though placements during March were up 11.1% (210,000 head) from 2016’s the April 1st on-feed count was only increased 0.5% (51,000 head).
Here we will define “marketing rate” as the proportion (percent) of cattle marketed by feedlots relative to the inventory. Small percentage changes in the marketing rate are important. In March of this year it was 17.8%, which was up 1.6% year-over-year and 1.8% above the prior 5-year average. For 2017’s first quarter, the marketing rate was up 1.1% from 2016’s and increased 1.0% compared to the 2011-2015 average.
Biologically, the higher marketing rate has contributed to lower fed animal dressed weights. For the week ending April 8th (latest data available), U.S. average Federally Inspected dressed weight dropped 10 pounds week-over-week and was down 28 pounds (3.2%) year-over-year. That is reducing the tonnage of meat each animal slaughtered provides to the marketplace
Since mid-January, the factors described above have resulted in weekly fed steer prices (5-market average reported by USDA-AMS Market News) increasing about $10.00 per cwt. That has contributed to higher yearling and calf prices, too.