Cattle Prices Are Now Headed, Slowly But Surely, Downward- Jim Robb of the LMICSat, 01 Aug 2015 12:06:23 CDT
Cattle prices have peaked and have already started a long, slow, slide downward. That's the contention of Jim Robb of the Livestock Market Information Center, who made that case in an article now posted on the LMIC website. Robb is our guest again on the Beef Buzz- and he explains how we got to the peak and how the slide downward will be impacting beef cattle outlook in the months ahead.
In today's Beef Buzz- as well as in that written analysis on the LMIC website, he sees no wholesale collapse, but rather a year over year gradual decline for the next couple of years. Here's his comments on what he calls a "Cyclical Transition."
"Cyclical transitions to lower cattle prices are expected to become more-and- more apparent in the second half of this year. Still, through 2016 prices will remain high by historical standards. Look for prices to erode year- on-year rather than collapse.
"On a quarterly average basis, fed cattle, yearlings (700-to 800-pound steer), and calf (500-to 600-pound steer) prices all cyclically peaked in the fourth quarter of 2014. Still those prices posted year-over-year gains in the first half of 2015, but are expected to be mostly below a year ago for the balance of this year and throughout 2016. The main driver behind year-over-year declines in fed cattle prices in coming months will be increased beef supplies, secondarily pork and chicken will be abundant in the domestic market.
"One driver behind yearling and calf price increases has been declining feedstuff costs, a trend that has run its course at least well into 2016. In fact, corn costs in recent weeks have been more than 10% above a year ago. In the first half of 2015,two major factors percolated through the marketing chain and kept fed cattle prices above a year ago: 1) significant year-on-year drops in cattle slaughter(compared to a year ago commercial slaughter fell 5.5% and 7.8% in the first and second quarters, respectively); and 2) strong domestic consumer demand for beef. In contrast, during the final six months of this year, U.S. beef production is forecast to be slightly above 2014's.
"Fed steer prices peaked in the fourth quarter of 2014, with the cash or negotiated 5-market USDA-
AMS data averaging $165.59 per cwt. (live weight). That price averaged $162.43 per cwt. for the first quarter of this year, which was 11% above the same quarter in2014. In the second quarter, the price was $158.11, 7% over a year earlier. Currently, the LMIC forecasts fed cattle prices will be about 5% and 6% below 2014's in the third and fourth quarters, respectively. Still, for calendar year 2015, fed cattle prices are expected to eclipse the prior record high set in 2014 (up about 1%).
"It is critical to note that rather high fed cattle prices have not translated into profits for cattle feeders, in fact, their red ink has been significant and losses on are increasing. In 2014, cattle feeders posted very high profits, but 2015 has turned into a year of red ink based on feeding-out a 750-pound steer. Those losses are beginning to pressure yearling and calf prices. Over the balance of this summer, the most abrupt adjustments for lower prices and larger price volatility week-to-week could be for heavyweight feeder cattle.
"In the Southern Plains, average quality 700-to 800-pound steers were $239.81 per cwt. in the fourth quarter of 2014. Quarterly average prices have eroded since then; coming in at $215.87 and $225.29 for 2015'sfirst and second quarters, respectively. On a per cwt. basis, that second quarter price was over $32.00 above2014's. Record high calf prices were set in the fourth quarter of 2014, with Southern Plains steer weighing 500-to 600-pounds at $285.63 per cwt. So far in 2015, those calf price levels were $276.14 for the first quarter. The second quarter was $279.32, a dramatic $51.65 per cwt. jump compared to one year ago.
"This year, LMIC forecasts that both yearling and calf prices peaked in the second quarter. The yearling price (700-to 800-pound average steer in the Southern Plains) in the third quarter is forecast to be about $13.00 per cwt. below the second quarter and down $12.00 to $16.00 compared to ayear ago (decline of about 6%). By the fourth quarter, the year-on-year yearling price drop could be 10% to 15%. The third quarter calf price is expected to remain above 2014's, but by the fourth quarter calves are forecast to be down about 8% compared to last year's. Note that for the calendar year, yearling and calf prices are both expected to be above 2014's and record high."
The Beef Buzz is a regular feature heard on radio stations around the region on the Radio Oklahoma Network- but is also a regular audio feature found on this website as well. Click on the LISTEN BAR below for today's show- and check out our archives for older Beef Buzz shows covering the gamut of the beef cattle industry today.
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