Analysis & Comments

Livestock Marketing Information Center

State Extension Services in Cooperation with USDA
September 11, 2014
Letter # 37
www . lm ic .i nfo

Cattle Market Price Drivers and Comments

A near perfect set of both demand and supply circumstances came together during the first half of
2014 creating record high cattle prices. Going into the year, it was clear that historically small cattle
numbers were going to ratchet-up prices, but the magnitude was going to be determined by the demand
side of the markets. Demand exceeded all expectations, especially as the second quarter progressed. U.S.
consumer demand for beef remained strong and pushed back against headwinds of a winter weatherdriven economic slowdown during the first quarter. Second quarter U.S. Gross Domestic Product
rebounded and posted strong gains, beef demand improved resulting in the strongest fresh beef retail
demand index calculated since the second quarter of 2007.
Overseas market demand for U.S. beef has been surprisingly strong as well. On a tonnage basis, beef
exports were above a year ago for each month reported through June. Julys export tonnage fell below
2013s as high prices began to reduce sales (down 13% year-on-year). Still, for the second half of the
year U.S. export tonnage is forecast to decline modestly. Foreign demand for variety meats also has
remained robust.
From a beef industry perspective, competing meats have been much less of a negative factor than
anticipated during 2014; in fact, they could be viewed as positive. U.S. pork production has been
depressed by Porcine Epidemic Diarrhea virus (PEDv). For the year, PEDv turned the potential for a
significant year-over-year increase in pork production into a decline; 2014s commercial hog slaughter is
currently estimated to be about 4.5% below a year ago and production down 1.5% to 2% (heavy hog
weights provided some compensation for the slaughter drop). Additionally, U.S. chicken output has
grown but at a much slower pace than earlier forecasts, mostly due to constrained growth in the breeder
supply flock. U.S. total red meat and poultry production in 2014 is forecast to be 1.2% below 2013s.
The year-over-year gains in cattle prices have been dramatic. For the first six months of this year, fed
cattle prices averaged 17.5% over 2013s. Year-over-year increases in yearling and calf prices during
January through June were even more dramatic yearlings were up 30% and calves 32%. Cattle markets
turned lower in mid-August, but remained record high for that month. By early September fed cattle
markets had rebounded back to record highs.
Dramatic price increases raise the question of when is the peak and at what level? The answer is
probably not yet, but it is coming into view. On an annual basis, cattle prices are likely to post gains
again in 2015, and how high remains a question of demand, both domestic and foreign. The magnitude of
the year-over-year cattle price gain posted in calendar year 2014 is not expected to be repeated in the next
few years. If the U.S. economy slips into recession in late 2016 or 2017, the fed cattle prices will also be
on the decline. Annually, calf and yearling prices generally follow fed cattle, although a short corn crop
would likely mean their prices have already topped-out.
Record high fed and feeder cattle prices are welcomed news for cow/calf operators. This also means
financial planning will be critical the next few years to take full advantage of profit levels.

Page 2

LMIC

Much Improved Crop and Pasture/Range Conditions

In most areas of the U.S., the summer of 2014 was the best for crops and pasture/range conditions
seen in several years. Notable exceptions included California, which has been in the worst drought in
decades. Nationally, improved conditions help support higher calf and yearling prices.
Current Midwest crop conditions indicate both the U.S. corn and soybean crops will be record large.
Over the first few months of the growing season corn prices tumbled, and by late July in the Midwest
corn was at its lowest price since early summer 2010. For the first time ever, the 2014 U.S. corn crop is
expected to exceed 14 billion bushels. One year from now the U.S. may have the largest corn carryover
since the 2009/10 crop marketing year, when the national average corn price received by farmers was
$3.55 per bushel. Importantly, 2009/10 was the last time that price averaged below $4.50 per bushel.
Currently, LMIC forecasts the 2014/15 corn crop-marketing year national average price received by
farmers at $3.50 per bushel, if realized that would be the lowest crop-year average since 2006/07 ($3.04
per bushel).
Nationally, pasture and range conditions this summer have been the best in several years. The Great
Plains, Corn Belt, Southeast, and Northeast have seen above normal conditions. This year, during the
June throughout August timeframe only 4% to 6% of U.S. pasture and range was rated in the lowest
category (very poor), using the USDA-NASS weekly data. For the prior two years, pasture and range
rated very poor for those months was 8% to 13% (2013) and 9% to 33% (2012).

Mid-Year Cattle Inventory

Nationally, most signs point to this summer being the transition point to U.S. beef cowherd
stabilization and pouring the foundation for growth in cattle numbers. However, the USDA-NASS midyear survey-based national data were not clear-cut.
After eliminating the long-standing mid-year (July 1) U.S. Cattle report in 2013 it was re-instated this
year due to congressional request. That report provides important insight into broad industry trends and is
especially important in tracking herd growth and contraction. That report generally showed trends as
expected compared to 2012s and to estimates of numbers for last year, with the exception of heifers.
As of July 1, the total number of cattle and calves was down USDA put the two year change at 2.9% while LMIC put the one-year drop at 1.3%. The mid-year beef cow count came in at 29.7 million,
down from the last USDA report, however in terms of head the estimated decline from a year earlier was
the smallest since 2007. USDA estimated the 2014 total calf crop as 1% below 2013s, which was in-line
with the reported cowherd as of January 1, 2014.
As of January 1 of this year, USDA reported that the number of heifers being retained for beef herd
replacements was above a year ago. USDAs January-June data on heifer slaughter, etc., suggest that that
planned heifer hold-back could have increased since the beginning of the year. But, that was not what the
mid-year USDA Cattle report said. All heifer sub categories weighing over 500 pounds (beef cow
replacements, dairy cow replacements, and other heifers) were down from two years ago and from
estimates for 2013. Several important relationships regarding heifers in the mid-year report were
confusing. Heifer numbers were apparently impacted more than other categories by the survey hiatus in
2013. Those are critical numbers that will await clarification by USDAs January 1, 2015 count.

Page 3

LMIC
Red Meat and Poultry Production

Both U.S. pork and chicken production during 2014 have been well below forecasts done in late
2013. Both those sectors have been profitable, but disease in hogs and a very constrained chicken breeder
supply flock impacted growth of those industries. Compared to a year ago, both steer/heifer and cow
slaughter levels have ratcheted-down compared to 2013s.
Pork and Chicken
Both pork and chicken production for the first six months of this year were below forecasts done in
late 2013. U.S. hog slaughter prospects have been reduced dramatically due to Porcine Epidemic
Diarrhea virus (PEDv). Heavier hogs kept pork production near a year ago, but expectations were for
increased production tonnage. The result was wholesale pork prices surged to record highs, instead of
slight year-on-year declines in the prices. Chicken output grew significantly less than expected,
increasing only 1.6% from 2013s. In the second half of 2014, U.S. pork production will continue to be
below a year ago (down 2% to 3%). Growth in chicken production is expected to remain very modest
(1.5% to 2%).
Next year is forecast to be one of increasing rates of growth in both pork and poultry production -preliminary forecasts are for year-over-year increases of 2% for pork and approaching 4% for chicken.
Further annual increases are forecast for 2016. How much pork output increases is rather uncertain, given
PEDv. Additional year-over-year increases are likely for 2016, but the rate of chicken output growth is
forecast to be moderate (preliminary forecast up 1% from 2015s) based on larger supply significantly
lowering profitability estimates beginning in the second half of 2015.
Cattle Slaughter and Beef Production
Commercial beef production totaled just over 12 billion pounds for the first half of 2014, down 5%
from 2013s. For the year, U.S. beef production is expected to be about 24.5 billion pounds, the smallest
since 1994.
Cattle slaughter and beef production are forecast to post declines throughout 2015, but the magnitude
is expected to be less than 2014s. Commercial cattle slaughter in 2015 is forecast to post a 2% to 3%
year-on-year drop, compared to nearly 6% this year. Commercial beef production next year is forecast at
just below 24 billion pounds, down about 2% from 2014s. In 2015, on a quarterly basis, beef tonnage is
forecast to be closest to 2014s during the final months of the year (fourth quarter 2015 down year-overyear just over 1%).
LMIC preliminary forecasts for 2016 call for U.S. cattle slaughter and beef production to drop
slightly. For the calendar year, commercial cattle slaughter is forecast to drop about 1% year-on-year,
however, heavier dressed weights may result in beef tonnage down less than 1%.
Two rather subtle aspects within the cattle complex might be at least somewhat offsetting during the
next few years: 1) more dairy-type calves in the feeder cattle supply and 2) fewer feeder cattle being
imported by the U.S. More-and-more dairy origin calves are entering the beef production system in the
U.S.; in tandem veal production is dropping. That trend accelerated in 2014 and is expected to continue;
projections put 2014s Federally Inspected calf slaughter 20% below a year earlier, which is a drop of
about 150,000 head. The general trend of more Holstein steers in the beef production system should
continue, be the pace of change may not be as dramatic as 2014s. From January through July 2014,
feeder cattle imports from Mexico and Canada were up 11% and 12%, respectively, compared to 2013s.
The increase in imports from Mexico given their declining cow herd is not sustainable into the future.

Page 4

LMIC
Total Red Meat and Poultry

U.S. total red meat and poultry production in 2014 is projected to be the smallest since 2010 and 1.2%
below 2013s. After adjusting production by imports, exports, and ending frozen stocks, U.S. beef
disappearance per person (often referred to as consumption) will be about 200.5 pounds on a retail
purchase weight basis. That will be the smallest per capita disappearance since 1997. Compared to 2013,
the annual drop is projected to be 3.1 pounds per person.
Increased pork and poultry production 2015 and 2016 are forecast to bump-up total red meat and
poultry 1.5% to 2.5% above 2014s in 2015 and post another year-over year increase in 2016 (up 1% to
2%). U.S. per capita disappearance in 2015 and 2016 is forecasted to increase.

Cattle Price Outlook

A Look at 2014, Including the Fourth Quarter
Annual fed cattle prices (USDA-AMS reported 5-Market Average) in 2014 are projected to average
over $150.00 per cwt. for the first year ever. For the calendar year, prices are forecast to average 20% to
22% over a year ago. Those prices in the first half of the year averaged 17.5% above 2013s. In the third
quarter of this year expect fed cattle to average in the $150s per cwt., the fourth quarter forecast is high
$150s to low $160s.
Yearling and calf prices set many record highs during 2014 and for the year jumped dramatically
above the prior record established in 2013. From January through June, year-over-year increases in
yearling and calf prices were 30% and 32%, respectively. The highest yearling and calf prices during the
year were posted early in third quarter. Fourth quarter yearling and calf prices are expected to be below
those recorded in the third quarter. Still, they will average well above 2013s fourth quarter: 1) yearlings
up about $51.50 per cwt. or 31%; and 2) calves up over $68.00 per cwt. or 36%. Using Southern Plains
prices, LMIC forecasts calendar year yearling (700-to-800-pound steer) price at $200.00 to $204.00 per
cwt. up 34% from 2013s; and calves (500-to 600-pound steer) at $237.00 to $241.00, up fully 39%.
Whens the Peak?
On a calendar year basis, cattle prices are likely to post year-over-year gains again in 2015, but not
necessarily every week, or even every month. The smallest increases in cattle prices during 2015,
compared to 2014, are forecast for the fourth quarter (unchanged to up 3%).
Two major uncertainties need to be monitored: crop production and the macroeconomic environment
(that of domestic and foreign beef buyers). Without issues in those two areas, annual average cattle prices
could peak in 2016 or 2017. In that scenario, rate of price increases probably slow down to almost zero
by late 2017.
If U.S. crop production gets hit with unfavorable weather such as drought, yearling and calf price
declines are almost assured. Cattle feeders will be very sensitive to any surge in corn and soybean prices
added onto already record high feeder calf costs. In that situation, annual yearling and calf prices peak
before those of fed cattle.
Significant economic slow-downs (i.e. recession) could abruptly reduce wholesale beef prices and
therefore a peak in cattle prices. Record high wholesale beef prices in the face of softening pork and
chicken prices sets the stage for significant economic slow-down (or recession) to quickly feed-back into
lower cattle prices. In terms of trade, the economies of major U.S. beef buyers will remain a key source
of demand and price drivers. Economic growth in Mexico, Japan, and South Korea could be particularly
important. Beyond economics, geopolitical factors can come into play that are not easily anticipated, the

Page 5

LMIC

most recent example this summer has been the international response to Russia and their retaliation using
trade bans on agricultural products.
All else equal, slow herd growth in coming years will tend to translate into price erosion after the
peak rather than an abrupt drop. Even after the peak, calf prices in the Southern Plains are likely to
remain above $200.00 per cwt. for several years.

Record High Cow-Calf Returns

Since the early 1970s the LMIC has estimated cow-calf returns over cash costs plus pasture rent
based on typical production and marketing practices in the Southern Plains. Those estimates incorporate
data and information provided by several USDA agencies. LMICs estimates are developed for market
analysis purposes, actual cow-calf returns will vary considerably, even between neighbors. Of course,
estimating returns over cash costs plus pasture rent does not include other economic costs like family
labor and management.
Cow-calf operators are the major beneficiaries of this market. For 2014, LMIC estimates cow-calf
returns just below $490.00 per cow. This is a new record high, vastly surpassing the previous high in
2004 of about $150.00. In 2014, return per cow is estimated at about $350.00 above a year ago. LMIC
estimates 2015 returns will remain large and may remain well over $450.00 per cow even if some
production costs, like interest, increase. The beef cow enterprise in 2014 and probably for several more
years will provide a true economic profit. It will require planning to take full advantage.

Cattle Feeders Profitable, But Breakeven Surges

Beginning about September 2013, after two years of significant red ink, cattle feeding returns began
to revive due to lower feedstuff costs and higher-trending fed cattle prices. Estimated feeding returns
were positive for each of the first eight months of 2014. Julys closeouts had the largest per head profit
for any month since November 2003. In turn, cattle feeders became very aggressive bidders for feeder
cattle and calves.
Even though feedstuff costs, especially corn, have decreased during recent months, estimated
breakeven sale prices for cattle placed into feedlots have been increasing. As calculated by the LMIC, the
breakeven is the sale price per cwt. that a finished steer must bring to cover all costs of production in a
Southern Plains commercial feedlot, including: yardage, death loss, and an interest charge on the animal.
Breakeven prices have increased because the cost of feeder cattle (e.g. 700-to 800-pound steer) have shotup more than the cost of feedstuffs have ratcheted down.
The net result of higher feeder cattle costs for feedlots and lower corn costs is high breakeven sale
prices required for fed cattle. That is, from a cattle feeding perspective, the corn price drop has not been
compensating for higher feeder cattle. If corn costs over the next few months continue to decline as
expected, LMIC calculated a 750-pound steer placed in mid-August is expected to have a breakeven sale
price (fed in a Southern Plains commercial feedlot) of about $170.00 per cwt. That animal should be
finished by early next year. Those breakeven sale prices will be difficult to cover and may make cattle
feeders more cautious buyers of yearlings and calves.

Page 6

LMIC
QUARTERLY COMMERCIAL CATTLE SLAUGHTER, BEEF PRODUCTION,
PER CAPITA BEEF DISAPPEARANCE AND CATTLE PRICES a

Year
Quarter

% Chg.
Comm'l
from
Slaughter Year Ago
(1,000 Head)

Average
Dressed
Weight
(Lbs.)

Comm'l
% Chg.
Beef
from
Per Capita
Production Year Ago Consumption
(Mil. Lbs.)
(Retail Wt.)

Live Sltr.
Steer Price
5-Mkt Avg
($/Cwt.)

Feeder Steer Price

Southern Plains d
7-800#
5-600#
($/Cwt.)

2013
I
II
III
IV
Year
2014
I
II
III
IV
Year
2015
I
II
III
IV
Year
2016
I
II
III
IV
Year
a

b
c

7781
8325
8321
8035
32462

-3.1
0.2
-0.1
-3.0
-1.5

794
782
794
799
792

6175
6513
6609
6423
25720

-1.7
0.6
0.4
-2.3
-0.7

13.7
14.5
14.3
13.9
56.4

125.51
124.95
122.30
130.77
125.88

142.41
137.34
155.95
167.04
150.69

170.13
159.71
171.19
187.56
172.15

7375
7836
7688
7636
30535

-5.2
-5.9
-7.6
-5.0
-5.9

796
789
807
808
800

5868
6183
6205
6168
24425

-5.0
-5.1
-6.1
-4.0
-5.0

13.1
14.0
13.5
13.4
54.1

146.34
147.82
158-159
159-161
152-154

171.77
193.16
224-225
217-220
200-204

209.30
227.67
263-264
254-258
237-241

7137
7602
7494
7510
29743

-3.2
-3.0
-2.5
-1.7
-2.6

802
795
812
813
806

5727
6044
6087
6102
23960

-2.4
-2.2
-1.9
-1.1
-1.9

12.8
13.7
13.2
13.3
53.3

159-162
159-163
156-161
158-164
158-162

215-219
217-223
216-223
211-219
215-221

256-261
261-268
256-264
252-261
256-264

7143
7325
7582
7427
29477

0.1
-3.6
1.2
-1.1
-0.9

808
801
820
819
812

5771
5864
6215
6084
23934

0.8
-3.0
2.1
-0.3
-0.1

12.7
13.3
13.3
13.2
53.0

159-166
160-168
157-166
157-167
159-166

213-222
216-228
214-226
209-221
215-223

257-268
261-273
256-269
252-266
258-268

c
Totals may not add due to rounding.
Forecasted quarters
d
Projected/Estimated quarter
Average of Kansas and Oklahoma Weekly Combined reports
Sources: Livestock Slaughter - USDA/NASS; Steer Prices - USDA/AMS Livestock Market News; Projections and Forecasts by LMIC