The Enid News and Eagle, Enid, OK

January 11, 2014

Beef production to fall

Staff and wire reports
Enid News and Eagle

ENID, Okla. — Beef packers in December paid $133 to $136 for slaughter cattle, surpassing the previous record of $132 set in late October, according to U.S. Department of Agriculture.

Cattle futures also climbed to a record as U.S. beef production is forecast to drop to an 11-year low in 2014, while the improving economy signals increasing meat demand.

U.S. beef production is expected to decline 5.7 percent to 24.205 billion pounds in 2014, the lowest since 1993, according to USDA. U.S. cattle feeders added 3.1 percent fewer cattle last month than a year earlier, reducing inventory to the second-lowest for Dec. 1 since the USDA started collecting data in 1996, according to the agency.

USDA also increased its projection for 2014 per capita beef consumption by 0.6 percent. The American economy is expected to expand 2.6 percent next year, up from 1.7 percent in 2013, according the median of 78 forecasts compiled by Bloomberg.

Higher beef prices will raise costs for retailers, while consumers are expected to pay as much as 3.5 percent more for the meat in 2014, USDA projects.

“Calf prices finished the year with the strong tone that has prevailed all fall,” said Derrell Peel, Oklahoma Cooperative Extension Service livestock market economist. “Feeder cattle prices are expected to average 11-13 percent higher in 2014 compared to 2013. Feeder cattle supplies will continue to tighten in 2014 if forage conditions favor accelerated heifer retention and herd expansion.”

Cattle futures for February delivery increased by 0.6 percent to $1.3495 a pound on the Chicago Mercantile Exchange (CME), after hitting $1.35275, the highest for a most-active contract since the cattle futures began trading on the CME in 1964.

Fewer cattle likely will cut the supply of beef to retailers, further pushing up prices — for packers as well as retailers and consumers.

Monthly retail price data showed beef in November at a record $5.41 per pound, surpassing the October record of $5.36, according to the USDA’s Economic Research Service.

American beef producers have reduced the U.S. herd to its lowest level since the early 1950s in response to drought in major production areas as well as high feed and hay costs.

Additionally, colder temperatures have slowed feedlot cattle weight gains and reduced the number of animals available to packing facilities.

The December Cattle on Feed (COF) report indicated November 2013 placements were 96.9 percent of levels from November 2012, Peel said. The Dec. 1 on-feed total was 94.5 percent of last year at 10.725 million head, the smallest December inventory since 1996.

“The COF report also confirms regional changes in feedlot production,” Peel said. “December feedlot inventories were down more, year over year, in the Southern Plains compared to the Midwest. Feedlot inventories in Iowa were 100 percent of last year, with Nebraska at 96 percent of one year ago, while Texas and Kansas inventories were 93 and 94 percent of last year.

“Oklahoma, in particular, has seen a sharp drop in feedlot inventories in 2013. The Dec. 1 Oklahoma feedlot inventory was 77 percent of year ago levels,” he said. “Okla-homa placements, January through November, were down 9.6 percent while marketings were down only 1.4 percent, leading to the reduced current inventory and smaller future marketings.

“Dec. 1 feedlot inventories in Texas and Oklahoma represented less than 26 percent of the total U.S. feedlot inventory for the first time since the current cattle on feed data series began in 1996.”

Reduced feedlot production in the Southern Plains reflects herd reductions in the region due to drought since 2010, Peel said, but also may reflect longer-term changes in cattle feeding competitiveness compared to the Midwest.

Some market analysts were surprised at the higher prices, but said it likely reflects efforts to gear up for beef features in retail stores.  

Based on strong prices for some beef cuts, such as rounds and chucks, retailers likely are gearing up to feature beef this year, analysts said, as two weeks of reduced slaughters will mean the beef pipeline is tight.

Farm Talk, of Parsons, Kan., contributed to this story.