Despite favorable weather and ensuing favorable pasture and range conditions, 2009 has not been a stellar year for the beef complex. The economic recession, high unemployment, and relatively abundant supplies of pork and poultry and have had a significant adverse impact on domestic beef demand. The worldwide extent of the economic downturn and its impact on international demand for U.S. beef and the U.S. dollar, combined with ongoing effects from North American BSE cases, have resulted in limited export growth of U.S. beef.
While weekly cow slaughter has remained mostly above 5-year-average levels thus far in 2009, it has exceeded 2008 levels only intermittently after being above 2008 levels for most of the first quarter. Except for early in 2009, beef cow slaughter remained below 2008 levels and only recently again exceeded 2008 levels. On the other hand, dairy cow slaughter exceeded both 2008 and 5-year levels for most of 2009, falling below only during some weeks in spring and early fall. These levels of dairy cow slaughter can be attributed to low milk prices and several rounds of Cooperatives Working Together program whole-herd buyouts.
More recently, cows have made up a significant proportion of total U.S. commercial cattle slaughter, averaging 21 percent of the slaughter mix for November 1 through November 28. During the same period, steers were averaging about 46 percent of the slaughter mix, compared with their more typical 50 percent. This increased proportion of cows in the slaughter mix, especially the generally lighter weight beef cows--which were well represented in the slaughter mix--has tended to reduce average dressed weights.
While heifers accounted for close to their typical 30 percent of the total commercial slaughter mix, their share of feeder cattle placements, ultimately for slaughter, is larger. The heifer share of cattle placed on feed has been generally increasing, yearover- year, on a quarterly basis, since 2005. More heifers can be placed on feed when fed cattle prices increase to levels at which producers trade current profits for
future profits, as they did in mid-2003 when BSE disrupted the flow of beef and cattle from Canada at a time when U.S. inventories were at low levels. More heifers can also be placed on feed when the profit picture is sufficiently dismal to discourage herd-inventory maintenance or building, as appears to be the case at present. Drought can also result in the placement of heifers in feedlots. The heifer share of feeder cattle placements on feed has implications for future cow inventories, calf crops, and beef production. As more heifers are placed on feed, two things can happen: short-term beef production can increase, and replacement heifer inventories can decline. In the absence of increased demand for beef, increased beef production can translate into lower prices throughout the beef/cattle complex. Reduced inventories of replacement heifers can lead to reduced cow inventories, calf crops, and fed cattle inventories for several years, which can translate into higher prices in the beef/cattle complex over the longer term. The fallout from these multi-year biological lags contributes to the inventory dynamics referred to as cattle cycles. Other factors, like drought, macroeconomic gyrations, and animal disease outbreaks, can shorten or lengthen inventory cycles.
Despite the high proportion of cows in the slaughter mix this year, average dressed weights of all cattle, which ordinarily peak about id-October, appear to be declining seasonally, but signals are mixed. This suggests that steer weights, which have been above both year-earlier and 5-year-average levels until recently dropping below 2008 levels, may not be decreasing as rapidly as the first couple of weeks of decline might suggest. Heavier weights contribute to beef supplies, as may a disproportionate number of heavy cattle from the Central Plains and Corn Belt—
which also tend to be heavier than their southern counterparts—in the slaughter mix. Despite earlier expectations for reduced supplies of feeder and fed cattle and at least periods of higher cattle prices, lackluster domestic and international demand for beef has resulted in pressure on feeder and fed cattle prices throughout 2009.
Feeder cattle prices in 2009 have remained below 2008 levels, and, with few exceptions, both years were below 5-year averages. Fed cattle prices in 2009 have also been below 2008 levels and below 5-year averages, although prices in 2008 enjoyed a period of relatively higher levels during late spring, summer, and early fall. The lower feeder cattle prices and relatively lower, at least compared with year-earlier, prices for corn have not been enough to establish positive feeding margins in 2009 other than during April and July, and reached only near-breakeven levels during June and November. While most months showed negative feeding margins in a broad range of around $50-$60 per head, these followed January 2009 losses in the $300-per head range (High Plains Cattle Feeding Simulator: http://www.ers.usda.gov/Publications/LDP/xlstables/CattleFeedingSim.xls ).
Ordinarily, higher byproduct values allow packers to bid more for cattle. Byproduct values have risen more than 70 percent from their low in March-April 2009. However, these are not ordinary times, and demand for beef is such that even positive or near-positive packer margins are not enough to motivate increased slaughter beyond an occasional year-over-year increase in weekly slaughter levels. As a result, total federally inspected cattle slaughter has remained below yearearlier levels for most of 2009, with year-to-date estimated cumulative slaughter running almost 4 percent below 2008 levels through the second week in December. Except for a brief period early in the year, 2009 weekly Choice cutout values have remained below both 2008 levels and 5-year averages. With a few more exceptions scattered throughout the year, the same has been true for weekly Select cutout values. So far in 2009, between 61 and 65 percent of graded carcasses were graded Choice or better, higher than levels in 2008, and averages in both years were above the 5-year average. The weekly Choice-Select spread has ranged generally close to year-earlier levels and well below 5-year-average levels, until recently dropping below both 2008 and the 5-year average.
Retail prices were slow to reflect wholesale beef price declines. Retail prices for Choice beef started the year at monthly record levels, which held until June when prices dropped below 2008 levels. September prices dropped below 2007 prices, and prices through October remained below both 2008 and 2007 levels. There is little reason to expect retail prices to recover for the rest of 2009.