Cull Cow Market Struggles to Find a Bottom

 

This week’s article comes from Dr. Derrell Peel at Oklahoma State University. I wrote about the cull cow market a few weeks ago (available here) and I found Dr. Peel’s comments today to be valuable info to add to the ongoing narrative on cull cow markets. Above is a seasonal index for cull cow prices. The way to interpret this chart is that an index of 1.00 is equal to the annual average. Since the December index is 0.90, that implies that December cull cow prices are usually 10 percent lower than the annual average. In 2018, we have seen low prices in the May-August time period which goes against the seasonal norm. Dr. Peel discusses this more below. 

The cull cow market likely reached a seasonal low in November but it has been difficult to understand this market this year.  Prices for Breaker cows in Oklahoma City averaged $50.13/cwt. in November, nearly 11 percent lower year over year, while Boning cows averaged $47.88/cwt., over 16 percent down from one year ago.  Cull cow prices have been counter-seasonally lower year over year from May through October and have averaged 13-15 percent lower year over year for the last seven months.

Cull cow prices typically begin a slight recovery in December following the November seasonal low.  Cull prices average a much stronger seasonal increase after January 1, increasing by 6.7 percent in January from the November low; with February up 16.2 percent; March up 18.75 percent; April up 19.6 percent and May up 21.1 percent all from the November low.   From current levels, this would suggest breaking cow prices of $53.47/cwt. in January; $58.26/cwt in February; $59.53/cwt. in March; $59.94 by April and $60.85/cwt. by May.

The question is whether the normal seasonal price increase can be expected given how weak the cull cow market has been since May of this year.  One of the big factors contributing to weak cull cow prices has been weak cow boxed beef prices in the second half of 2018.  In the last week of November, cow boxed beef prices were 7.8 percent lower than year earlier levels and have averaged 8.3 percent lower year over year since mid-year.

Increased supplies of cow beef is no doubt part of the cause for lower cow beef (and cull cow) prices. Total cow slaughter is projected to be up 7.2 percent in 2018 over last year, with a projected 9.6 percent year over year increase in beef cow slaughter and 4.9 percent increase in dairy cow slaughter.  This is higher than the 2017 year over year increase of 6.3 percent in total cow slaughter.   Total cow slaughter in 2019 is forecast to be flat to slightly lower year over year and should reduce the supply pressure a bit following three years of increasing cow slaughter.  Beef imports, the bulk of which are processing beef that compete with cow beef, have been flat in 2018 and are forecast to decrease 3-5 percent in 2019.

While overall beef demand has been strong in 2018, the demand for cow beef is more uncertain. The bulk of cow beef is used for ground beef.  It is possible that ground beef demand is facing more pressure from large supplies of pork and poultry compared to beef middle meats.  Cow beef (90 percent lean) is mostly used to mix with fed trimmings (50 percent lean) to make the appropriate ratio of lean to fat in ground beef.  Fed trimmings prices have remained close to year ago levels in contrast to the weakness in cow beef prices.  Increased fed slaughter in 2018 and forecast larger slaughter again in 2019 would seem to suggest ample fed trimmings supply to support cow beef prices.  However, growing exports of some fed products, such as navels, that historically were part of fed trimmings may be the reason for stronger fed trimmings prices relative to cow beef prices.

With all that said, I expect that a relative tightening of cow beef supplies will help cull cow prices to follow close to a normal seasonal increase going into 2019. Like all beef markets it is dynamic and evolving and bears watching in the coming months.

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