September Seasonal Price Impacts

The past few weeks we have focused on market reactions to the Tyson beef plant fire (read again HEREHERE, and HERE). This event negatively impacted cattle prices and will remain a key topic throughout the Fall. But this is far from the only factor affecting cattle prices, especially as more time passes since the fire. One of the key factors that usually pushes prices lower during this time of year is seasonality.

We have discussed seasonal patterns in this newsletter before (see HERE). In short, they are the normal price patterns throughout a year driven by production and marketing patterns. Seasonally, either September and October are the lowest price months of the year for both fed cattle and feeder cattle due primarily to large volumes. Using the Alabama price index data above, September prices for 600-700 steers are 3% lower on average than during August and October prices are about 6% lower. The story is the same for Mississippi and most Southeastern states. It is also important to note that August is usually a little stronger than July – a bump which did not happen this year.

A common question right now is “when will prices get back to where they were before the fire?” But the story is more complicated than that given the time of year that the fire occurred: right before prices usually find a bottom. Auction prices have recovered some since the lows seen the week following the fire. Mississippi auction prices were 4 to 7 percent lower last week than the week prior to the fire depending on weight class. This is an improvement from the 6 to 10 percent drop seen in the week after the fire. Prices may not get all the way “back” partially because seasonal patterns usually negatively impact prices this time of year.

Price and Production Impacts

Special Note: News over the weekend reports that the U.S. and Japan have agreed in principle to a deal that would reduce tariffs on U.S. beef exports to Japan. There are few details now and the agreement is not formal yet, but overall it is great news for the beef industry. I’ve discussed how important a deal with Japan would be many times in this blog (see herehere, and here). More to come as more information is released…

The Tyson Fire is now two weeks behind us and we are starting to get a better picture of the impacts on markets and production. This week’s newsletter will be more visual than usual because I think these graphs tell the story well. As shown in the graph above, the boxed beef cutout value has increased sharply since the fire. This, combined with the lower cattle prices shown below, has led to some very large margins for packers which is a strong economic incentive to figure out a way to offset the loss in packing capacity.

Perhaps the first thing that most cow/calf or stocker producers notice is the impact on feeder cattle prices. The action in the futures market was clear, but so has been the drop in auction prices over the past 2 weeks.

The same declines occurred in the live cattle market shown in the graph below. The rationale here is that live cattle prices would have to be cheaper due to the temporary lower slaughter capacity.

This next graph is where things get interesting. Even with the temporary closure of the Tyson plant, total cattle slaughter last week was up nearly 2 percent from a year ago and higher than in the weeks prior to the fire according to USDA-AMS data.

There are plenty of reactions to this information. The first is likely, why did cattle prices drop so much? After all, wasn’t it the fear of less slaughter that was the culprit for the significant declines? Another reaction could be that the markets reacted in a way that kept cattle and beef moving through the supply chain.

My reaction is a little of both with the understanding that there are a lot of moving pieces. The markets certainly reacted in the directions that we should expect given a shock to the supply chain (see Dr. Jayson Lusk’s analysis on that here). The magnitude of the change is the debate – a debate that is being conducted every day in the futures markets. September feeder cattle futures closed today at $136 which is only about $2 lower than the day before the fire. This supports the idea of now that we have more information, we are not as bearish on prices.

One point to keep in mind is that U.S. packers as a whole were not running at 100% capacity pre-fire and thus there was some room to absorb some of the loss. This is also “total cattle slaughter” and not just steer and heifer slaughter so it will be worth looking at the breakouts in coming weeks. It could have been more costly processing that was not being used pre-fire such as adding extra weekend shifts, but the high margins since the fire likely made even the most costly processing “worth-it.”

All else equal, I expect beef values and cattle prices to revert to more normal ratios as time passes, especially given the evidence that the capacity is still possible.

Week in Review and a Look Ahead

Wow, what a week. The fire at the Tyson and the crop production report pushed markets into a frenzy during the first few days of the week. Fears of a slowdown in slaughter pushed beef prices higher and live cattle prices lower. This drove up the margins for packers and gave a strong incentive to absorb some of the lost slaughter caused by the fire. Choice boxed beef prices increased by about 10% percent in one week.

There was plenty of talk about overreaction of markets on Monday and Tuesday. The argument can be made that cattle prices should not have dropped as much as they did. The fact that futures prices rebounded on Wednesday supports that idea. But markets don’t have to be “exactly right” in the short-term to still be efficient in the long-run. Market adjustments are typically very subtle but when a shock such as this fire occurs, wild swings happen.

Markets react to news in a way that allows products to go to where they are most demanded. In this case, the higher packer margins incentivized plants to increase slaughter in order to offset some of the loss from the Kansas plant. This is a primary reason that weekly slaughter totals will not be 5,000 head lower while the plant is closed even though that is the report of what the Tyson plant was processing each week.

I do think this is a short-term shock, but a significant shock. The underlying fundamentals of the beef sector have not changed so much that we should expect this impact to persist in the long-term, especially once the plant comes back on board.


I want to close with the following is an excerpt from Dr. Derrell Peel at Oklahoma State which I think is very well-written.

“The complex set of markets in the cattle and beef industry are all impacted initially.  Live and feeder futures dropped sharply for two days before beginning to moderate late last week.  It is one of the functions of the futures markets to anticipate the worst case scenario, especially in the face of much uncertainty, before moderating as the reality of the situation becomes clearer.  Feeder cattle markets also decreased in the face of lower fed prices and the uncertainty roiling all markets.

Is the initial reaction an overreaction?  In one sense yes, but it is a very common market response to reestablish supply and demand balance quickly.  We see it in all markets and certainly in agricultural markets. Corn prices of $7/bu. in 2012 helped ensure increased corn production to overcome drought impacts and meet growing corn demand; and $3/cwt. calf prices provided the temporary incentive to jumpstart herd expansion in 2014.  By virtue of extreme initial reactions, markets ensure that equilibrium in supply and demand is reestablished as quickly as possible. The sudden shock of the current situation and the resulting big initial market reactions encourage buyers and sellers to change plans; incur additional costs; and react quickly to new arbitrage opportunities.

What should we expect going forward?  Similar situations from the past may provide some indications.  In December, 2000, a ConAgra beef packing plant in Garden City burned completely; never to reopen.  Subsequent research confirmed initial reactions generally similar to the current situation.  Most of the negative impacts on fed cattle prices subsided in three to six weeks after the event.  Packing capacity relative to cattle supplies is somewhat tighter this time so the impacts may be slightly larger or longer-lived.  Nevertheless, boxed beef and cattle markets will likely adjust relatively quickly in the coming weeks with final adjustments depending on the duration of the plant closure.”

Some Hard Data on Lab-Grown Meat

Lab-grown meat (and plant-based meat) has been a major topic of discussion in cattle groups over the past few years. Most of this discussion has centered around questions and speculative answers. The first questions centered around “Can beef really be grown in a lab?” The answer to that one has proven to be yes. The next logical question is “how much will it cost?” I’ve seen plenty of guesses but nothing concrete. The most interesting and perhaps most important question has always been “will anyone actually eat it?” Newly released research by Dr. Jayson Lusk at Purdue University and others provide some insight into this question as detailed in his blog post last week.

“With all the news about Beyond Meat’s stock price and the rolling out of the Impossible Burger at Burger King, there has been a lot of speculation about how consumers might response and about the ultimate size of this market. In a new paper with Ellen Van Loo and Vincenzina Caputo, I’m pleased to bring some hard data to the these debates.

What did we do? We surveyed about 1,800 U.S. food consumers earlier this year and asked them to make a number of simulated shopping choices. In each choice, consumers had five options: conventional farm-raised beef, a plant-based burger made with pea protein (i.e., Beyond Meat), a plant-based burger made with animal-like protein (i.e., Impossible Foods), labgrown meat (i.e., Memphis meats), or they could choose not to buy any of the products (i.e., “none”). Respondents were randomly allocated to different treatments that varied the use of brand names (present/absent) and the information that was provided (none, environment information, or technology information).”

What did they find? At constant prices and conditional on choosing a food product, “72% of respondents chose farm-raised beef, 16% plant-based (pea protein) meat alternative, 7% plant-based (animal-like protein) meat alternative, and 5% lab-grown meat. Adding brand names (Certified Angus Beef, Beyond Meat, Impossible Foods, and Memphis Meats) actually increased the share choosing farm-raised beef to 80%.”

“Even if plant- and lab-based alternatives experienced significant (e.g., 50%) price reductions, farm-raised beef maintains majority market share. Vegetarians, males, and younger, more highly educated individuals tend to have relatively stronger preferences for the plant- and lab-based alternatives relative to farm-raised beef. Respondents are strongly opposed to taxing conventional beef and to allowing the plant- and lab-based alternatives to use the label “beef.”

Lusk closes by saying “Because these are new products just hitting the market, it is possible that these preferences can and will change, particularly when more consumers are able to taste them. However, at present, the future market potential for these products appears to fit more in the “niche” category, even at significant price discounts. What will happen in the future? Only time will tell.”


Cattle Cycle Dynamics

There were no big surprises in the recent July 1 Cattle Inventory report. The beef cow herd was estimated to be the same as a year ago while the number of heifers held back for replacements was lower than a year ago. These estimates were in line with what was expected following the January report.

There has been plenty written about the current cattle cycle topping out and this report was another piece of evidence supporting that story. The July report marked the fourth consecutive January or July report that showed less than one percent growth compared to the previous year. While still not a decline, these modest or flat growth numbers are a contrast to the rapid growth from 2015-2017.

This is a natural time to look at the longer-view state of the cattle and beef cycle. The July story from 2017 to 2018 was larger calf crop but fewer heifers retained. The story from 2018-2019 is a small decline in the calf crop and even fewer heifers retained. The estimated 2019 calf crop of 36.3 million head would be the first calf crop decline (albeit a small decline) when compared to the previous year since 2014.

Cattle on feed are at record large levels that would be expected at the peak of a cycle. However, dressed weights have moderated over the past few years and especially in the past few months which has softened some of the impact of larger cattle inventories on total beef production. June marked the ninth consecutive month that federally inspected steer dressed weights were lower than the previous 5-year monthly average. This is pretty rare given that dressed weights have been increasing for decades but not too unusual when in the context of the current cycle. The same streak of declines occurred in 1996-1997 which was the peak of the 1990-2004 cattle cycle and there was also a similar period in 1984 which was near the peak of the 1979-1990 cycle.

While it is fairly clear that the cattle numbers have leveled out (at least for now), the story is different for beef. The natural lags in the cattle and beef sector cause beef production to peak later than cattle do. Beef production will continue to be bigger for the next few years while these supplies work through the beef supply chain.

June Feeding Closeouts Dip into the Red

Cattle feeding closeouts turned negative in June for the first month in 2019. The Livestock Marketing Information Center (LMIC) calculations show the June closeout was -$60.66 per animal sold for feeding-out a 750-pound steer in a commercial Southern Plains feedlot. Similarly, calculations by Iowa State University (ISU) for steers placed as yearlings and calves and sold at slaughter-weight in June were also negative. ISU calculated that steers placed as yearlings and sold in June generated a loss of -$39.71 per head (including manure credit), and animals placed on-feed as calves came in at -$100.61. For yearlings, the LMIC calculations showed that before June, the last red ink was for September 2018, while ISU last estimated a negative profit in December 2018.

Neither the LMIC nor ISU estimates are survey-based. But they do provide indications of the direction of change. Of course, late 2018 and the first several months of 2019 many cattle feeders had much worse results than these calculations, which are based on normal weather. Very muddy feedlot conditions resulted in red ink for many cattle feeders. The baseline production systems and assumptions for the LMIC and ISU are different. Besides using different prices and costs, ISU incorporates, for example, Modified Distillers Grains in the ration, which is a common feedstuff there.

The LMIC makes projections for breakeven sales prices in coming months based on recent feedstuff costs, etc. A steer reaching market weight in July (placed at 750-pounds) has an estimated breakeven sales prices of about $111.25 per cwt. August’s breakeven level is projected to be similar to July’s. So, closeouts for July and August are likely to bring more red ink. If feedstuff costs do not skyrocket, cattle feeders are expected to generally breakeven or post small profits late this year. In the situation where corn cost is already locked-in, November breakeven sales price is in the range of $105.50 to 106.50 per cwt, and December is $111.00 to $112. Current Live Cattle futures prices (shown below) are about $109 for the August contract and $114 for December.

This article was written by the Livestock Marketing Information Center with some additional information included. LMIC is a cooperative effort between state university extension specialists (including me), USDA economists, industry cooperators, and LMIC staff. For more info about LMIC, click here.

Level U.S. Cattle Inventory

USDA-NASS released the mid-year cattle inventory report last Friday. This is an annual report that estimates the number of cattle on July 1 each year. It is not as comprehensive as the January 1 report in that there is no state-by-state breakout. However, the information in the report is a useful look over time to get an estimate of the cattle inventory cycle.

The all cattle and calf count was unchanged from a year ago (103 million), as was the number of beef cows (32.4 million). This estimate supports the idea that the rapid cattle expansion seen in the past 5 years has leveled-off.  The July 1 inventory of steers over 500 pounds was 14.7 million head, up 1.4 percent year over 2018 levels.  The inventory of other heifers over 500 pounds was 7.9 million head which is up about 5 percent.  Overall, this report was well-anticipated and contained no surprises.

Perhaps the most interesting estimates were the number of heifers reported as being held for beef cow replacement purposes and the 2019 estimated calf crop. The number of heifers reported as being held for beef cow replacements declined by just over 4 percent. This is another sign that herd expansion has slowed. The first estimate by NASS for the 2019 calf crop showed a slight drop compared to 2018 at 36.3 million head compared to 36.4 million head a year ago.

What does all of this mean? My take is that the cattle inventory numbers are in in a bit of a holding pattern, there is not a lot of evidence (i.e. really low prices) to suggest that heavy liquidation is soon to come. There is also not a lot of motivation (i.e. high prices) for continued expansion. I expect the rest of 2019 and into 2020 to continue to be mostly flat on inventory changes.


Wettest Spring Since 1995 Leads to Lush Pastures

Range and pasture rated in either good or excellent condition as of July 7 stood at 69%, according to the USDA’s National Agricultural Statistical Service (NASS) in their weekly crop weather bulletin. Last year, 51% of pasture were judged that favorable. At the other end of the spectrum, 8% of pastures were rated in poor to very poor in the latest week compared to 21% a year ago. The commentary from USDA-NASS that accompanied their estimates of crop plantings, released in late June, noted that this was the wettest June for the lower 48 States since 1995. It was the wettest spring on record for Kansas. This spring was among the top 10 wettest on record for three Plains States (Nebraska, Oklahoma, and South Dakota) and five Midwestern States (Illinois, Indiana, Iowa, Missouri, and Wisconsin).


States with 40% or more of their pastures rated as very poor to poor account for only 1.5% of the beef cow herd. A year ago, 29% of the beef cow herd was in states with 40% of pastures in poor or very poor condition. Meanwhile, 96% of the beef cow herd is in states with 40% of pastures rated good to excellent this July versus 62% a year ago.

Ample, economical, forage supplies have been impacting decisions throughout the live side of the supply chain. Beef cow slaughter was up by a small percentage during the first three months of the year but jumped up to a 9% increase in April. May beef cow slaughter returned to year-earlier levels, and weekly slaughter in June has followed a similar pattern. The flow of cattle into feedlots was up 9% from a year earlier in April but ebbed to a 3% decline in May.

Will abundant pasture forage have an impact on breeding stock inventory decisions?  The plunge in calf prices is hard to ignore.  Steer calves at Oklahoma City weighing 500 pounds dropped $22 per cwt. from April to June.  Last year, the decline over the same interval was only $7, and in 2017, calf prices went up $3.  In 2016, however, monthly average calf prices were down $26 from April to June.  The last year that pasture ratings were close to this year was 2015 (66% of pastures rated good and excellent). The beef cow herd added a million head that year.  Calf prices declined $6 from April to June, but they averaged $285 per cwt. in June, compared to $161 this June.

This article was written by the Livestock Marketing Information Center which is a cooperative effort between state university extension specialists (including me), USDA economists, industry cooperators, and LMIC staff. For more info about LMIC, click here.

Halfway-2019 Cattle Market Update

The first half of 2019 has been a wild ride for cattle markets in the Southeast. A seasonal rise to start the year pushed Mississippi steer prices above 2018 levels where they remained for several weeks into April. However, quickly following was a rapid decline to levels below year-ago. Seasonality was the undercurrent but was far from the only driver. Cattle markets usually find a peak in March or April followed by a decline into the early summer. This was the case this year, but the speed and magnitude of the 2019 decline was brow-raising to say the least. A bearish April Cattle on Feed report, continued large supplies, weaker export totals, and the recent corn market rally left cattle markets without much good news into May and June.

More recently, the news has turned more positive for cattle producers driven in-part by a drop in corn prices and positive pasture conditions. There is evidence that futures markets may have found their seasonal lows. Nearby and deferred live and feeder cattle contracts pushed a little higher last week. The nearby August feeder cattle contract settled at $138.83 which was nearly $7 higher than the low 2 weeks ago.

Large beef supplies are still a major piece of the market puzzle. U.S. cattle slaughter for the first half of 2019 was about 1.1 percent above a year ago. However, lower cattle dressed weights have helped to moderate beef supplies. While cattle slaughter was up 1 percent, beef tonnage produced was only up about 0.2 percent compared to the first half of 2018. Those are small percentages but equate to a large amount of beef.

The wet Winter and Spring in the Southeast and around the country have led to relatively few drought concerns. On a national scale, pasture conditions are some of the best on record. This should provide some strength to cattle markets and some flexibility for producers on how they fill those pastures. As always, managing cost of gain is critical in the summer and fall months and probably will have a bigger impact on final profit per animal than any other factor.

Looking ahead, U.S beef production is forecasted to be up about 2.5 percent in the third quarter and flat in the fourth quarter compared to a year ago (there is one more slaughter day in 2019 quarter 3 versus 2018). Domestic beef demand is expected to remain rather strong and while exports have been lower than 2018 levels to start the year, USDA currently forecasts a strong finish to the year could push 2019 totals barely above 2018.

Where feeder cattle prices go in the second half of 2019 is going to be heavily dependant on the corn market. Current forecasts are for 2019 third quarter feeder steer prices to be about $10 per cwt below 2018 levels. Fourth quarter prices are forecasted to be about $5 lower than year-ago levels. For those looking to sell calves in the Fall, continuing to watch the markets is important this year. This could be a year when some selective market timing might pay-off more so than usual due to the potential volatility overflowing from the corn market.

Increased U.S. Beef Access to Japan

The big news in beef markets last week was the increased access of U.S. beef in Japan. The agreement allows U.S. beef from all age cattle to enter Japan which removes a previous 30-month age limit. Below is an excerpt from the USDA announcement.


“The U.S. Department of Agriculture estimates that this expanded access could increase U.S. beef and beef product exports to Japan by up to $200 million annually. The agreement is also an important step in normalizing trade with Japan, as Japan further aligns its import requirements with international standards for bovine spongiform encephalopathy (BSE).” (Read the full announcement here).

This is an important removal of a non-tariff barrier. Japan is a $2 billion market for U.S. beef and an additional $200 million annually is a sizable leap. However, there are still tariff barriers in place as U.S. beef faces a steeper tariff than competing countries exporting beef to Japan. The headlines of “Full access” are a bit misleading. It is true that we can export beef from any age cattle, but that beef is still subject to a tariff. For more background on U.S. beef tariffs in Japan, HERE is a link to an article from this newsletter series in 2018.