Last week’s live cattle average price was just under $120 per cwt. This was the “5-area” average price which simply means that it was the average of the five major feeding and processing areas: Texas/Oklahoma/New Mexico; Kansas; Nebraska; Colorado; and Iowa/Minnesota. The live cattle market is heavily influenced by beef demand as this is the stage of the beef production chain where cattle can be turned to beef. If packers need more beef to fill orders and meet demand, then they can bid more aggressively on live cattle. If beef demand is light, then packers may not bid as strong for live cattle. A “normal” year would see live cattle prices peak in the early Spring ahead of the summer holiday and grilling season. The late winter and early Spring months are also the months with the lowest number of cattle slaughtered.
Also important is the supply of “market-ready” cattle available. This represents the number of cattle that are sitting in feedlots that are ready to go to packers. The best observation of the price point where beef demand and the supply of market-ready cattle come together is found in the live cattle market. The term “market-ready” captures a pretty wide range of cattle because it can differ depending on the market situation. For example, in the Spring of 2017, higher live cattle prices led feedlots to market some lighter cattle than normally would have. During this time there were not enough heavier cattle to meet beef demand.
We are starting 2018 at very similar live cattle prices to what began 2017 even if some of the underlying market forces are different from a year ago. Higher placements of cattle into feedlots throughout 2017 might suggest there will be plenty of market-ready cattle available to meet the expected seasonal increases in beef demand in the coming months. That probably makes it unlikely that we will see a supply-driven surge into the $140s like we did in 2017. However, even with the larger number of cattle placed, feedlots remain very current. Strong marketings throughout 2017 ensured that feedlots didn’t swell with market-ready cattle waiting to be sold. The number of cattle on feed over 120 days was actually below the prior 5-year average in December.
The current situation is that prices are relatively strong despite the increased supplies. Strong domestic and international beef demand is allowing for outlets for the increased beef production without forcing market prices to very low levels. It is also helping move cattle through feedlots which is important for feeder markets. When and how high the peak in the live cattle market will be in 2018 will have implications throughout the beef production chain.