October’s Animal Science: Today and Tomorrow
Dr. Tom Troxel Dr. Michael L. Looper
Cattle weights continue to increase at impressive rates.
The federally inspected steer dressed weight for the week of 8/15/15 was 900 pounds, according to USDA. This was 25 pounds heavier than a year ago, and well on track to set a new record in 2015 above the 906 pounds seen in October of 2014.
Looking back at steer dressed weights, on an annual average basis, weights increased by 0.5% per year since 1960 (they were 656 pounds in 1960). Using that percentage increase (0.5%) works through 2013, but does not capture the increased growth rate seen in 2014 and what is estimated for 2015. Looking back, 2014 experienced a 1% growth in steer dressed weights year-over-year, and 2015 is on track to be 2% higher than 2014’s.
Cattle dressed weights are a result of several moving parts in the industry. From the supply side, heavier weights result in more production out of fewer animals. Using 2015 year to date cattle slaughter numbers with 2014 (same time period) dressed weight levels, it can be calculated the increase in weights so far this year have added 2% more beef to market supplies, compared to last year if we had the same slaughter levels. Of course year-over-year, slaughter levels are down by 7% but beef production is only down by 4% thanks to increased dressed weights across all cattle categories.
Projecting this above average growth in cattle weights starts to raise questions regarding how much cattle herd inventory growth the U.S. really needs. Of course, that answer depends largely on foreign and domestic beef demand, but if these weights continue to increase at a faster pace, the industry may not restock back to the previous inventory peak levels. Additionally, as cattle supplies increase we could see more premium pricing for the restaurant targeted weight/size fed cattle.
Steer dressed weights are the result of several factors in the feeding industry specifically, the supply of cattle, price of corn, and price of feeder replacements. As has been the story since mid-2014, feedlots are feeding cattle longer instead of incurring relatively high feeder cattle replacement costs. This pencils out for feedlots due to cheaper corn costs compared to feeder cattle prices, especially compared to just a few years ago. As the feeder cattle prices erode, dynamics in the feeding sector will heavily depend of the relative prices of all other inputs.
Looking at the balance of 2015, winter weather has the ability to impact these cattle weights. Part of the reason we saw such a large increase in weights fourth quarter of 2014 was that most of the U.S. experienced a very mild winter. This may not be the case for 2015, and if winter weather is coupled with a faster turnover rate through the feedlot, steer dressed weights could move off their fast growth pace into a more normal and slower rate.
Looking ahead into 2016, it is expected that feedlots will start moving these cattle through at a faster rate. For 2016, an increase in dressed weights is still expected, but at the more normal pace of 0.2%-0.5% annually (Source: LMIC).
Cowherd expansion is here.
The beef cowherd is expected to be up for the second consecutive year on January 1, 2016, with an increase of 1.1 to 1.3 million head expected – totaling near 31 million beef cows. The 2015 calf crop is estimated at 34.3 million head. The estimated 400,000 head increase will be the largest since 1994. Beef cow slaughter is on pace to be down 350,000 head in 2015 – dropping to the smallest total since at least 1970.
Steer and heifer slaughter is on pace to be down more than 1 million head compared to 2014. Combined with smaller non-fed slaughter, beef production will be down 550 million pounds in 2015 – marking the fifth year in a row for declining production. Fed slaughter is expected to increase by 600,000 head in 2016 due to a larger calf crop and a larger available feeder cattle and calf supply. Larger production increases are expected in 2017 and 2018 (Source CattleFax).
Beef cattle price outlook.
- Retail beef prices in 2016 should weaken slightly in the face of larger beef supplies averaging near $5.95/lb.
- Feeder cattle supplies will remain tighter than last year throughout second half 2015 – supporting a yearly average price near the $157/cwt. As fed cattle supplies increase in 2016, leverage will shift to the packer and pressure fed cattle prices to around $146/cwt.
- Feeder cattle prices should average $215/cwt in 2015 and $195/cwt in 2016.
- Calf prices will average $267 for 2015 and $237/cwt for 2016.
- The 2015 average Utility-grade cow prices is $109/cwt. Values will narrow around $10/cwt next year as non-fed beef production increases and U.S. beef imports pullback slightly – resulting in a weaker and more seasonal 90% lean trim market.
- Bred female prices should finish this year steady to softer. In 2016, bred female prices should move lower as supplies increase and demand weakens (Source CattleFax).