The US Department of Agriculture’s boxed beef cutout value topped $240 a cwt for the first time ever on Jan. 22, up about 5 percent in a week and up more than 20 percent from a year earlier. While severe winter weather was a factor, the surge also was symbolic of what has been going on in the beef segment, with nearby live cattle futures prices, cash slaughter cattle values and retail beef prices all near or at record highs in recent weeks.

Cattle markets still are recovering from drought and record high feed prices in 2012 that forced many producers to reduce or liquidate herds. And prospects for significant relief had yet to make the horizon, even as weather conditions improved and transportation and packing house operations returned to a more winter normal last week.

“Winter storms and holidays have recently disrupted flows of cattle from feedlots to packers and have resulted in rapidly rising fed cattle and beef prices,” the USDA said in its Jan. 16 Livestock, Dairy and Poultry Outlook. “Cow slaughter in 2013 potentially set the stage for an expected further decline in total cow inventories on Jan. 1, 2014.”

Click image for larger view

The USDA’s Jan. 31 annual Cattle report indicated the total US cow herd on Jan. 1 was 87.7 million head, down 2 percent from 89.3 million head on Jan. 1, 2013, and the lowest Jan. 1 inventory of all cattle and calves since the 82.1 million on hand in 1951. The 2013 calf crop was the smallest since 1949, but heifers kept for beef cow replacement were up 2 percent from 2013.

The good news is that profit margins for cattle feeders are firmly in positive territory. The bad news is consumers won’t see a break from record high beef prices for some time.

The decline in the cattle supply also is taking a toll on beef packers. On Jan. 31, citing a declining supply of fed cattle, National Beef Packing Co., Kansas City, announced plans to close its Brawley, Calif., beef processing plant in April.

A near 40 percent decline in corn prices in 2013 from drought-induced highs in 2012 is a significant factor improving profit margins for cattle feeders, as are high prices, which are expected to prompt expansion of cow-calf operations at some point. But because of biology, it takes years to increase cattle numbers (and slaughter cattle supplies actually decline early in the expansion phase as heifers are kept for breeding rather than sent to packing houses). In contrast, hog producers may adjust herd sizes in months and poultry producers may increase flocks in weeks to take advantage of lower corn prices and higher profit margins.

“While fed cattle prices remain at or above $130 per cwt, cattle feeding margins should continue to be positive,” the USDA said. Prices paid to feedlots recently have been at record highs near $140 per cwt.
The USDA forecast choice steer prices in the major-producing, five-state direct cattle market to average between $129 and $138 a cwt for all of 2014, compared with $125.89 a cwt in 2013, $122.86 a cwt in 2012, $114.73 a cwt in 2011 and $95.38 a cwt in 2010.

“Retail beef prices are expected to average higher in 2014 than they did in 2013,” the USDA said in its Jan. 16 Outlook. “However, consumer acceptance of the higher prices will be influenced to some degree by the anticipated increase in pork and poultry supplies.”

Click image for larger view.

In its most recent Food Price Outlook for 2013-14, the USDA’s Economic Research Service forecast beef and veal prices to increase 3 percent to 4 percent over 2013 levels. In addition to supply chain disruptions caused by weather, “Cattle inventories, which have been very low since the 2012 drought, are expected to decrease slightly in early 2014, further restricting supply,” the USDA said. “Many retail beef prices are at or near record highs across the country, even after adjusting for inflation. Currently, ERS forecasts that beef prices will rise more than most other prices in 2014.”

US Department of Agriculture and Bureau of Labor Statistics data showed the average retail price of all fresh beef was a record 503.6 cents a lb. in December, up 10 cents from September, although the average price of choice beef had eased slightly from November. In contrast, the average price of all pork in December was 376.1 cents a lb. and the composite average for broilers was 196.7 cents a lb., both of which had declined slightly from September levels.

Beef production in 2014 was forecast by the USDA to decline for the fourth consecutive year, to 24,403 million lbs., down 5 percent from 2013 and down 7 percent from 2010. As a result, per capita beef consumption also is expected to take a hit, falling to 53.6 lbs., down 2.9 lbs., or 5 percent, from 2013, down 6 lbs., or 10 percent, from 2010 and the lowest in records going back more than four decades.

The drop in per capita beef consumption generally is seen as the result of a combination of less beef available, high beef prices and increased supplies of competing proteins. The USDA forecast increased production of both pork and broilers in 2014.