Both fed cattle and boxed beef markets put in what appeared to be unusually early summer lows in June. Since then the industry has waited anxiously to see if those lows would hold through August. In fact, boxed beef prices did decrease in early August and put in a new low. Fed cattle prices also decreased from July levels but did not drop below the previous June lows. More importantly, both boxed beef and fed cattle prices advanced this past week and the likelihood of more summer pressure on cattle and beef markets seems low.
In general, cattle and beef prices did not drop as much this summer as many analysts expected earlier and it may be instructive to try to understand why. In the first place, demand has probably been better than expected. Although macroeconomic conditions are still fragile, the stock market has stalled and unemployment hasn't dropped much; domestic beef demand has certainly not been the negative that it was last year. Moreover, export demand has continued strong all year and has provided critical support to beef markets.
More importantly than demand has been the increasing support due to ever tighter cattle supplies. Lighter carcass weights have resulted in lower beef production despite slaughtering more cattle this year. Not only are feeder cattle supplies at historically low levels on an annual basis but strong feedlot placements in May and June reduced available supplies for the second half of the year. Feedlot placements for the rest of the summer will be lower but will increase seasonally when the fall runs of long yearlings and calves begin. It appears that feedlots are quite current and even the large May and June placements will not result in significant bunching of feedlot marketings this fall.
Forage conditions have also played a role getting us to this point and will help going forward. Good forage conditions this spring and summer spurred strong demand for summer grazing. Based on current budget projections, there will likely be good demand for winter grazing on wheat pasture. Although supply driven cattle markets tend to squeeze margins, forage based gains are valuable in a world of higher priced corn. Stocker margins certainly look more favorable than feedlot margins in the coming months.
All these factors together suggest generally higher cattle prices and more upside potential than downside risk albeit with potential volatility. Fed cattle prices will likely advance into the upper $90s late in the year, perhaps just about covering the increasing feedlot breakevens that will result from higher feeder cattle prices. Feeder and stocker prices will be subject to seasonal pressure in the fall but both strong stocker demand and continuing feedlot demand (depending critically on corn prices) may limit seasonal declines. Uptrending beef demand, even at a slow pace may further support cattle prices. At some point, perhaps as early as this fall, limited heifer retention could begin further squeezing feeder supplies. I expect feeder and stocker prices to remain very robust for the remainder of the year. That said, while there are many reasons to be bullish, risk is ever present and every producer must evaluate their unique situation to determine the best approach to these market opportunities.
Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist