Supply and Demand

by Shauna Hermel, Angus Beef Bulletin

The beef industry dynamics favor the beef producer who wants to take advantage, said CattleFax staff who presented as part of the Cattle Industry Convention and Trade Show. The CattleFax Outlook Seminar, on Feb. 2, in Orlando, Fla., featured many of their analysts covering various areas from beef, live cattle, feed grains and global factors. 

The U.S. beef cow herd declined 2% in 2023, marking the fifth consecutive year of herd contraction. The cow herd inventory is at 28.2 million head at the beginning of this year, reported Kevin Good, CattleFax vice president of market analysis. Despite record-high calf values, it will take a change in the weather to signal herd expansion, he added.

“In 2023, on average, half of the U.S. beef cow herd was in dry conditions and a third was in drought conditions,” Good said, noting the weather lmited heifer retention and encouraged liquidation in major cow states. “Until that changes, unfortunately, it’s going to be a hard lift to get the herd to turn around.”

Cow culling rates at 13.5% two years ago were record high, and last year’s 12.4% was the third-highest in the last 30 years, he pointed out. CattleFax forecasts this year’s cow slaughter down 700,000-plus, supportive of cull cow values, but still a liquidation. Producers have yet to start heifer retention. In 2023 heifers comprised nearly 40% of cattle on feed and that needs to be closer to 36%-37% to indicate expansion.

He suggested this year will be a mild liquidation year, adding that the bottom in the last cattle cycle was a V shape and this cycle’s will be a  trough. 

“It’s going to take longer to build this herd back up,” he explained, which supports a longer period of high feeder-calf prices.

Delayed heifer retention, imports of Mexican feeder cattle and slow turnover rates with more days on feed equated to on-feed numbers up 2% Jan. 1, 2023, at 11.9 million head. Good predicted 2024 feeder-cattle and calf supplies outside of feedyards to be 1 million head smaller than 2023 at 24.1 million head. January placements were down substantially, and he said cattle-on-feed numbers were expected to drop below a year ago.

Commercial fed slaughter in 2024 is forecast to decline by 750,000 to 24.8 million head. Good called the weather’s effect on fed-cattle weights in the Corn Belt during January horrific.

“Carcass weights have dropped like a rock the last few weeks, and it’s supported a stronger market — beef-wise, and also the cash market as we go forward,” he said. Still, with the lower number of cattle and the value of fed cattle, “we would still suggest when this year’s done that carcass weights will be higher than they were a year ago, particularly through the second half of the year.”

Good expects beef production to be down another billion pounds in 2024 to total about 25.9 billion lb. The decline in production in 2024 will lead to a 1.7-lb. decline in net beef supply to 56 lb. per person.

“When thinking about what demand looks like, we need to think about what our consumer looks like with the U.S. economy being the driving factor going into 2024,” Good said. “Though inflation has moderated, consumer debt and interest rates, cheaper alternative proteins, and economic uncertainty may limit spending and impact purchasing decisions.”

While higher beef prices may soften consumer purchasing habits, Good predicted consumer preference for the quality, consistency and safety of U.S. beef will continue to support relatively strong demand. 

“Premiums for higher-quality beef should remain, as consumers have shown a willingness to pay for Choice grade or better beef.”

Global protein demand continues to rise, and tighter global protein supplies should broadly support prices in 2024. U.S. beef exports declined in 2023, down about 13%. Another 5% decline is expected in 2024. 

Price Outlook

by Julie Mais, editor

Market transition in the past few years favors the cattle producer, according to Mike Murphy, CattleFax chief operating officer, who gave the price outlook.

Higher cattle prices and reduced feeding costs will continue to increase margins for cow-calf producers for the next several years, a much-needed improvement to drive expansion as weather patterns allow.

All cattle classes are expected to trade higher with a continued upward trend. Murphy forecasted the average 2024 fed-steer price at $184 per hundredweight (cwt.), up $9 per cwt. from 2023.

He said a decline in fed cattle slaughter will funnel more dollars back into production with that leverage starting at the cattle feeder and packing segments, which he forecast to be at an applied breakeven. 

When forecasting fed-cattle prices, Murphy said he starts with the wholesale level. Retail and wholesale demand is expected to be a bit softer, but, “We are still going to see a higher-than-average price for cutout in 2024 of about $3,” he said. 

The demand will be historically strong as a reflection of a high-quality product. Murphy expects 2024 to be more of a seasonal year compared to previous unseasonal trends. 

“We’re going to find this spring rally moving in here to the mid to upper eighties,” he said. “Some of the weather influence has a possibility of getting us a little bit higher. We’ll pull that back into a summer low. I think today we define that summer low being somewhere out there a little bit later, July into August, and then we’ll have a recovery going back into the end of the year.”

The cost of gain to feed cattle and the value of the fed cows themselves indicates cattle will be fed longer and with added weight, Murphy said. 

“Not that we want to carry cattle as a cattle feeding industry, that’s not what we’re advocating for,” he explained. “But if we do do some of that, I don’t think it’s going to have as much of a negative impact as maybe we’ve seen in other cycles just because of where we are with our declining supply here in front of us; not only with a 750,000-head decline in fed slaughter this year, but also looking into another decline into 2025.”

Murphy said the expected prices are 800-lb. steers averaging $240 per cwt., and 550-lb. steers averaging $290 per cwt. Utility cows are expected to average $115 per cwt., with bred cows at an average of $2,600 per head. 

The calf market will transition, as it’s expected to be a different cycle than in 2014-15. 

He said the key to the calf market will be influence of the number of heifers sold on the valuation of calves. 

He explained he’s seeing added capacity in the slaughter level in the next two to three years, and at the same time ranchers not pulling heifers back yet as in the last cycle. 

“Now the best of it might be here in 2024, 2025,” he said. “You start to get a few more calves offered up in 2026, and that spread starts to narrow a little bit. But we should feel very confident about having a calf market that’s going to be sustainable, near $3 over the next few years.”

According to Murphy, cattlemen can buy bred females for about $2,400 and they will make some money.  

From an economic standpoint, he added though there are some concerns with La Niña and its effects, with the valuation of calves there’s opportunity to expand operations. 

Economy, Energy and Feed Grains

by Megan Silveira, associate editor 

Inflation and interest rates were on the rise in 2023, but Troy Bockelmann, CattleFax director of protein and grain market analysis, said producers can expect dropping interest rates, reduced gas prices and income growth. He explained these factors signal a reduced probability of recession, though the overall economy growth for the country is expected to slow.  

The average price of crude oil this year is forecast to be near steady with 2023 prices. Though the United States is producing record amounts of oil, the global economy isn’t near record-setting numbers. 

Bockelmann said this means, “Ultimately, we’re in a lot more of a supply-and-demand equilibrium when it comes to global production and consumption of oil.” 

He predicted crude oil to average $80 a barrel, retail diesel at $4.30 a gallon and natural gas at $2.90. 

Turning to corn stocks, Bockelmann said 2023 saw an increase in corn acres of about 7.8 million acres and a record yield, boosting production by 1.66 billion bushels (bu.). Increased demand didn’t offset the increase of production, and the ending stocks were around 800 million bu. greater than the year prior. 

“We’re starting off 2023-2024 in a comfortable position, and we’re going to head into the 2024-2025 marketing year with those expectations,” he summarized. 

Current corn stocks-to-use at just under 15% should help keep the market below $5.75 per bu. Bockelmann predicts a yearly average price of $5.25 per bu. He also encouraged producers to keep an eye on the soybean market. Stocks-to-use are still in a relatively high position, but movement in this market will be the driver for the corn market moving above expectations. 

Alongside the corn market, he is also anticipating an increase in hay this year. 

“You could see the hay market push a little higher into the spring along with the corn market,” Bockelmann said, “but ultimately average about $30 below a year ago’s levels in 2024.”  

A good hay crop this year would help rebuild stocks from lows in 2022 and return prices to a more historically normal range. While differences will apply based on region, the U.S. average all-hay price will see an elevation in the first half of 2024 from last year’s price of $220 per ton. Those prices will drop about $30/ per ton following harvest. 

Predictions from the CattleFax presentation can be followed more closely as the Prospective Plantings Report and Acres Report are released in March and June, respectively, Bockelmann said. 

Weather Forecast

by Megan Silveira, associate editor 

“This year we’re headed towards a La Niña.” 

Matt Makens, weather analyst for CattleFax, took a dramatic pause on stage after making his opening remarks. The crowd stayed quiet. 

“Why ain’t nobody cheering out there?” Makens laughed, admitting that the El Niño time period of last year was a positive one for cattle producers across the country. 

Though there’s a 14% historical probability the planet can bounce back into El Niño, Makens said those weren’t likely numbers. 

“History says we will have La Niña in place by this summer,” he explained. “That is Dr. Art Douglas’ and my philosophy — history first. You can’t go forward without a rearview mirror to see what was behind.” 

By studying sea surface temperatures as the main basis of his forecast, Makens can see the ocean is already starting to cool off. 

In the months leading up to April, Makens said northern areas can expect more rainfall than normal. From the Central Plains down to Florida and Texas, temperatures will also be cooler than normal. 

March to May will find heat rising in the north, where they’ll stay through to June. April will also signal the start of moisture starting to shrink back down across the country. This will lead the country into July, where heat will gather near Mississippi and start to build through the South, all while drying out.

There’s the option for a neutral summer instead, however, Makens said. This outlook features more moisture for a large part of the country. More rainfall would lead to a slight hold-off on the drought. 

“I’m not considering it,” he clarified, “but that would be a possibility.”

Other considerations for cattlemen in a La Niña year include the lack of wet storms from California reaching southern states. 

“Next winter, we’ll be much colder, and in some cases, wetter for northern states,” Makens added. 

Drought will stay for the South, though Makens reminded producers that water levels improved this past year in Texas, the West, parts of south Florida and central Florida. 

Corn areas did get worse in 2023, but Makens offered some good news. 

“We will improve that as moisture returns, as we transition back to La Niña,” he said. 

With the final prediction in place, Makens warned producers that the last remaining question is about the duration of this La Niña phase. It could return for several years in a row.