Cattle and Beef Markets: Short and Long Run Challenges and Opportunities

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1 Cattle and Beef Markets: Short and Long Run Challenges and Opportunities Derrell S. Peel Breedlove Professor of Agribusiness and Extension Livestock Marketing Specialist Oklahoma State University

2 Major Beef Market Factors Cattle Inventory and Beef Production Beef Demand International Trade Feed and Input Markets Forage Conditions

3 BOXED BEEF CUTOUT VALUE Choice Lbs. Carcass, Weekly $ Per Cwt Avg JAN APR JUL OCT C-P-62 04/08/13 Data Source: USDA-AMS

4 $ Per Cwt SLAUGHTER STEER PRICES 5 Market Weighted Average, Weekly JAN APR JUL OCT Avg Data Source: USDA-AMS

5 MED. & LRG. #1 FEEDER STEER PRICES Pounds, Billings, Weekly $ Per Cwt Avg JAN APR JUL OCT Data Source: USDA-AMS, Compiled by LMIC 04/01/13

6 MED. & LRG. #1 STEER CALF PRICES Pounds, Billings, Weekly $ Per Cwt Avg JAN APR JUL OCT Data Source: USDA-AMS, Compiled by LMIC 04/01/13

7 SLAUGHTER COW PRICES Southern Plains, 85-90% Lean, Weekly $ Per Cwt Avg JAN APR JUL OCT C-P-35 04/08/13 Data Source: USDA-AMS

8 Mil. Head 140 JANUARY 1 TOTAL CATTLE INVENTORY U.S., Annual = 89.3 Million Head -1.6 Percent Data Source: USDA-NASS C-N-01 02/04/13

9 Mil. Head 40 JANUARY 1 BEEF COW INVENTORY U.S., Annual 2013 = 29.3 Million Head -2.9 Percent Cyclical Expansion Cyclical Liquidation Drought Liquidation Cyclical Expansion Input Shock- Recession Liquidation Drought Liquidation Data Source: USDA-NASS C-N-02 01/29/12

10 Mil. Head JANUARY 1 FEEDER CATTLE SUPPLIES Residual, Outside Feedlots, U.S Data Source: USDA-NASS C-N-30 02/04/13

11 Mil. Head 7.0 HEIFERS HELD AS BEEF COW REPLACEMENTS January 1, U.S % Data Source: USDA-NASS C-N-38 02/04/13

12 Million Head Yearling and Cow Slaughter, Annual Yearlings Yrlg Proj Cows Cow Proj Data Source: USDA-NASS, Compiled & Analysis by LMIC

13 Cattle Slaughter, Annual Million Head Data Source: USDA-NASS, Compiled & Analysis by LMIC M-S-03A 01/29/13

14 Mil. Head BEEF PRODUCTION vs. CATTLE INVENTORY Inventory on January 1, U.S. Commercial Beef Production Bil. Pounds Total Cattle Inventory Data Source: USDA-AMS, Compiled & Analysis by LMIC M-S-23 08/10/12

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17 U S ALL HAY PRODUCTION Crop Year Mil. Tons Production Data Source: USDA-NASS, Compiled & Forecasts by LMIC G-NP-19 01/11/13

18 U S ALL HAY STOCKS December 1 Mil. Tons Data Source: USDA-NASS, Compiled & Forecasts by LMIC G-NP-22 01/11/13

19 Hay Price, $/ton $ $ $ $ $ $ $90.00 $70.00 $ All Hay Alfalfa Other Hay

20 Mil. Pounds 550 BEEF PRODUCTION Federally Inspected, Weekly Avg JAN APR JUL OCT Data Source: USDA-AMS & USDA-NASS M-S-18 04/08/13

21 Thou. Head CATTLE SLAUGHTER Federally Inspected, Weekly Avg JAN APR JUL OCT Data Source: USDA-AMS & USDA-NASS C-S-08 04/05/13

22 STEER DRESSED WEIGHT Federally Inspected, Weekly Pounds Avg JAN APR JUL OCT Data Source: USDA-AMS & USDA-NASS C-S-18 04/05/13

23 BEEF COW SLAUGHTER Federally Inspected, Weekly Thou. Head Avg JAN APR JUL OCT Data Source: USDA-AMS & USDA-NASS C-S-34 04/05/13

24 CHOICE MINUS SELECT BEEF PRICES Carcass Cutout Value Lbs., Weekly $ Per Cwt Avg JAN APR JUL OCT C-P-68 04/08/13 Data Source: USDA-AMS, Compiled & Analysis by LMIC

25 Bil. Pounds COMMERCIAL BEEF PRODUCTION Quarterly Avg. 2007/ JAN-MAR APR-JUN JUL-SEP OCT-DEC Data Source: USDA-NASS, Compiled & Analysis by LMIC M-S-01 03/29/13

26 $ Per Cwt WHOLESALE BEEF RIBEYE PRICES Boneless, Light, Weekly Avg JAN APR JUL OCT Data Source: USDA-AMS M-P-21 04/01/13

27 $ Per Cwt WHOLESALE BEEF FULL TENDER PRICES Musl-On, 5 Pounds and Up, Weekly Avg JAN APR JUL OCT Data Source: USDA-AMS M-P-23 04/01/13

28 $ Per Cwt. 260 WHOLESALE BEEF CHUCK PRICES Boneless 2 Piece, Weekly Avg JAN APR JUL OCT Data Source: USDA-AMS 04/01/13

29 $ Per Cwt JAN WHOLESALE BEEF BOTTOM ROUND PRICES Pounds, Weekly APR JUL OCT Avg Data Source: USDA-AMS M-P-22 04/01/13

30 $ Per Cwt WHOLESALE BONELESS BEEF PRICES Fresh, 50% Lean, Weekly Avg JAN APR JUL OCT Data Source: USDA-AMS M-P-25 04/01/13

31 $ Per Cwt WHOLESALE BONELESS BEEF PRICES Fresh, 90% Lean, Weekly Avg JAN APR JUL OCT Data Source: USDA-AMS M-P-24 04/01/13

32 COMMERCIAL PORK PRODUCTION Quarterly Bil. Pounds Avg. 2007/ JAN-MAR APR-JUN JUL-SEP OCT-DEC Data Source: USDA-NASS, Compiled & Analysis by LMIC M-S-06 03/29/13

33 WHOLESALE HAM PRICES Selected, Pounds, Weekly $ Per Cwt Avg JAN APR JUL OCT M-P-27 04/01/13 Data Source: USDA-AMS

34 $ Per Cwt. 165 WHOLESALE PORK LOIN PRICES 1/4 Inch Trim, 21 Pounds and Down-Light, Weekly Avg JAN APR JUL OCT Data Source: USDA-AMS M-P-28 04/01/13

35 WHOLESALE PORK BELLY PRICES Primal Cutout Value, Weekly $ Per Cwt Avg JAN APR JUL OCT M-P-29 04/01/13 Data Source: USDA-AMS

36 $ Per Cwt JAN WHOLESALE PORK TRIMMING PRICES Fresh, 72% Lean, Weekly APR JUL OCT Avg Data Source: USDA-AMS M-P-30 04/01/13

37 $ Per Cwt. 180 WHOLESALE PORK SPARERIB PRICES Vac. Packed, 3/Bag, 4.25 Pounds and Down, Weekly Avg JAN APR JUL OCT Data Source: USDA-AMS M-P-31 04/01/13

38 RTC BROILER PRODUCTION Quarterly Bil. Pounds Avg. 2007/ JAN-MAR APR-JUN JUL-SEP OCT-DEC 2014 Data Source: USDA-NASS, Compiled & Analysis by LMIC M-S-30 03/29/13

39 Cents Per Pound JAN WHOLESALE CHICKEN BREAST PRICES Skinless/Boneless, Northeast, Truckload, Weekly APR JUL OCT Avg Data Source: USDA-AMS P-P-02 04/01/13

40 Cents Per Pound 85 WHOLESALE CHICKEN LEG PRICES Northeast, Truckload, Weekly Avg JAN APR JUL OCT Data Source: USDA-AMS P-P-03 04/01/13

41 Cents Per Pound 225 WHOLESALE CHICKEN WING PRICES Northeast, Truckload, Weekly Avg JAN APR JUL OCT Data Source: USDA-AMS P-P-07 04/01/13

42 U S BEEF AND VEAL EXPORTS Carcass Weight, Monthly Mil. Pounds Avg JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Data Source: USDA-ERS & USDA-FAS I-N-16 04/08/13

43 Bil. Pounds 3.0 U S BEEF AND VEAL EXPORTS Carcass Weight, Annual Data Source: USDA-ERS & USDA-FAS, Compiled & Analysis by LMIC I-N-06 03/11/13

44 MAJOR U S BEEF EXPORT MARKETS Carcass Weight, Annual Mil. Pounds Avg. 2006/ Japan Canada Mexico Korea I-N-18 03/11/13 Data Source: USDA-ERS & USDA-FAS, Compiled & Analysis by LMIC

45 U.S. Beef Exports Major Markets lbs Carcass Wt OTHER KOREA MEXICO CANADA JAPAN

46 U S BEEF AND VEAL IMPORTS Carcass Weight, Monthly Mil. Pounds Avg JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Data Source: USDA-ERS & USDA-FAS I-N-15 04/08/13

47 Mil. Pounds MAJOR U S BEEF IMPORT SOURCES Carcass Weight, Annual Australia New Zealand Canada Mexico Avg. 2006/ Data Source: USDA-ERS & USDA-FAS, Compiled & Analysis by LMIC I-N-36 03/11/13

48 United States: Beef Trade Projected 1,000 METRIC TONS Exports 2009 Imports

49 U S BEEF AND VEAL IMPORTS Carcass Weight, Annual Bil. Pounds I-N-12 03/11/13 Data Source: USDA-ERS & USDA-FAS, Compiled & Analysis by LMIC

50 Thou. Head 2000 CATTLE IMPORTS FROM CANADA AND MEXICO Annual 1500 Mexico Canada Data Source: USDA-ERS & USDA-FAS, Compiled & Analysis by LMIC I-N-13 02/11/13

51 U S CATTLE IMPORTS FROM CANADA Monthly Thou. Head Avg JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 2013 Data Source: USDA-ERS & USDA-FAS I-N-04 04/08/13

52 U S CATTLE IMPORTS FROM MEXICO Monthly Thou. Head JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Avg Data Source: USDA-ERS & USDA-FAS I-N-03 04/08/13

53 CORN ACREAGE Acres Planted (million) Data Source: USDA-NASS, Compiled & Analysis by LMIC

54 Bu. Per Acre NATIONAL AVERAGE CORN YIELD Crop Year Data Source: USDA-NASS, Compiled & Forecasts by LMIC G-NP-04 03/28/13

55 U S ANNUAL CORN PRODUCTION Crop Year Bil. Bushels Data Source: USDA-NASS, Compiled & Forecasts by LMIC G-NP-07 03/28/13

56 Mil. Head 12.0 CATTLE ON FEED US Total, Monthly 11.5 Avg. 2007/ JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC C-N-10 03/22/13 Data Source: USDA-NASS

57 Mil. Head 2.7 FEEDLOT PLACEMENTS US Total, Monthly Avg. 2007/ JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Data Source: USDA-NASS C-N-08 03/22/13

58 Mil. Head 2.2 FED CATTLE MARKETINGS US Total, Monthly Avg. 2007/ JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Data Source: USDA-NASS C-M-11 03/22/13

59 $ Per Cwt CHOICE STEER PRICE vs BREAKEVEN Cattle Feeding, S. Plains, Monthly Latest Data: February 2013 Steer Price Breakeven Projected Breakeven Data Source: USDA-AMS & USDA-NASS, Compiled & Analysis by LMIC C-P-21 03/15/13

60 $ Per Head AVERAGE RETURNS TO CATTLE FEEDERS Feeding 725 Lb. Steers, S. Plains, Monthly Latest Data: February Data Source: USDA-AMS & USDA-NASS, Compiled & Analysis by LMIC C-P-22 03/15/13

61 2013 Cattle Market Expectations Cattle and beef prices pushed higher by limited supplies Beef production down by % Beef demand will limit price increases Question is How much higher? Moderation in feed prices Higher cow and heifer prices (if no drought) Breeding cow and heifer demand

62 Corn Price Crop year average, $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $ , 2013 Projected

63 Cattle Industry Evolution 1960s-2006 Built on cheap energy and cheap grain Increasingly grain intensive Limited stocker role (more calves in feedlots) Influence on production systems Animal genetics (carcass weights) Type and use of technology Industry infrastructure (location and capacity) Cattle feeding Meat packing

64 Cost per Pound of TDN, Cents/lb. $18.00 $16.00 $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $ Corn Hay Source: Nevil Speer. Based on corn at 88% and hay at 55% TDN

65 It is often said: The Beef Industry Can Survive High Corn Prices Better Than the Pork and Poultry Industries True statement? What are the implications for the beef industry?

66 Feedlot Cost of Gain Kansas, $/cwt

67 KANSAS FEEDLOT CLOSEOUTS Feeding Costs per Cwt, Steers $/cwt Avg. 2007/ Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Data Source: KSU Focus on Feedlots, Compiled by LMIC 04/01/13

68 Corn Price and Estimated Feedlot Cost of Gain Based on Kansas Feedlot Data Corn Price $/Bu Estimated Feedlot Cost of Gain $/cwt

69 Permanently Higher Grain Prices is a Game Changer for the Beef Industry Change from grain intensive to forage intensive to maintain competitiveness Must emphasize ruminant advantages Enhanced role for stocker production Influence on production systems Animal genetics (change animal size?) Type and use of technology? Better forage management New forages? New forage systems? Industry infrastructure (location and capacity) Different feeding industry? Regional shifts in cattle feeding, cow-calf and stocker production

70 Future Forage Use in the U.S. 1) Use more forage 2) Use forage more efficiently 3) Manage forage more efficiently 4) Use different forages 5) Use forages differently

71 The Industry Faces New Questions For the last 4-5 decades: How can we get cattle to use more grain? For the coming decades: How can we produce high quality beef using the least amount of grain? Expanded forage role

72 $ Per Cwt ANNUAL AVERAGE CATTLE PRICES Southern Plains lb Steer Calves lb Feeder Steers Fed Steers Data Source: USDA-AMS, Compiled & Analysis by LMIC C-P-06 03/12/13

73 Cattle Sector Implications Cow-calf Good profit potential; cost management key Rebuilding strategy and costs Producer transition Stocker Good value of gain Feedlots and packers will continue to struggle Loss of capacity likely Production challenges bigger than marketing challenges

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