Growing Cattle Inventories And Beef Supplies Cause Some Heartburn As Year-End Markets Wrap Up

By Dr. Derrell Peel,
Oklahoma State University Extension Livestock Marketing Specialist

Dr. Derrell Peel, Oklahoma State University Extension Livestock Marketing Specialist, offers his economic analysis of the beef cattle industry. This analysis is a part of the weekly series known as the "Cow Calf Corner" published electronically by Dr. Peel and Dr. Glenn Selk. Today, Dr. Peel summarizes the recent trends observed in the cattle market as the 2016 marketing year comes to a close.

"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.