A monthly column written exclusively for Beef Central by US industry commentator, Steve Kay, publisher of US Cattle Buyers’ Weekly
SLAUGHTER data is one of the most important indicators as to what’s taking place in cattle markets and in the overall beef industry.
That’s especially true right now in both Australia and the US.
As Beef Central readers well know, ongoing drought and increased female turnoff is bringing more cattle than expected to abattoirs. In the US, grainfed steer and heifer slaughter levels are being closely watched to see if producers are marketing cattle as fast as they should be. Increased heifer slaughter also indicates that growth in the US beef herd is coming to an end.
Slaughter levels are also determining in both countries how much beef is produced and has to be sold at home and abroad. That’s why latest slaughter forecasts by Meat & Livestock Australia are important, both to Australian cattle prices and to key Asian export markets for both countries.
MLA has recently upwardly revised Australia’s annual cattle slaughter to 7.8 million head, 9pc higher than the 2017 total. Beef production for 2018 is now forecast to increase 7pc to 2.3 million tonnes carcase weight, and Australian beef exports are forecast to increase 10pc in 2018.
The good news is that MLA says pressure on cattle prices is being offset by strong growth in key Asian export markets even though the US is also sending more beef to these markets.
In the US, much of the focus is on weekly steer and heifer slaughter levels. The industry here is also digesting new data that says that beef herd expansion is slowing considerably after aggressive expansion from 2014 to 2016 inclusive.
Market analysts warned months ago that market-ready supplies of grainfed cattle would be at near-record levels for any month on August 1 and would continue to be much larger than a year earlier the rest of 2018. Carcase weights and weekly steer and heifer slaughter will provide key evidence as to whether the industry is marketing cattle on a timely basis or not.
July live cattle (steer and heifer) cash prices actually held up better than expected. The conventional wisdom was that prices would weaken because of the impact of the so-called dog days of summer on beef sales and the build-up in market-ready cattle supplies. But cattle feeders wrestled leverage away from beef processors in two weeks of the month. They dug in for higher money because of mounting feeding losses and packers relented, knowing they were still making well over US$100 per head.
Cattle feeders’ July victories however might have come at a cost because they did not sell enough cattle to reduce the front-end cattle supply (cattle on feed 150 days or more). Market analyst Andrew Gottschalk of HedgersEdge.com estimated the August 1 the total at 2.135 million head, up a whopping 49pc from last year. Gottschalk also forecasts that the front-end supply will remain much larger than last year into next January. So marketing rates must accelerate, he says.
Other analysts though say the peak in supplies has been reached. Whether this is correct or not might be hard to tell if cattle feeders defer marketings to take advantage of cheap feed costs and the premium in the deferred live cattle futures. In other words, the peak in supplies might get pushed back into later this month or even into September.
That’s why US carcase weights and weekly slaughter levels as they apply to steers and heifers will be so critical. For the year to July 14, steer weights averaged 870 pounds (395kg) in the 28 weeks, versus 864 pounds (392kg) for the first 28 weeks last year. Heifer weights averaged 809 pounds (367kg) versus 801 pounds (364kg) last year. These are both sizeable year-on-year increases and suggest that this year’s average weights will be quite a bit higher.
Steer and heifer slaughter for the 28 weeks totaled 13.713 million head or 490,000 head per week, versus 13.395 million or 478,000 head per week last year. Steer and heifer slaughter in July never got above 520,000 head per week and was only 505,000 head one week. This level was far too low for the industry to market cattle on a timely basis going forward, say analysts.
US feedlots will have to be much more aggressive in their marketings the next two months to keep carcase weights in check and avoid new price lows for the year in September or possibly later. Producers should remind themselves that last year’s weekly low came at the start of September after a nearly US$15 per cwt decline in live prices from the third week of July.
Meanwhile, it’s clear that the expansion phase in the US cattle cycle is coming to an end. It’s also clear that the cycles are much flatter, with far fewer years between the low and high point than seen until the late 1970s.
The US beef cattle sector is well into its cyclical adjustment phase, transitioning from aggressive herd expansion to very modest growth, says analyst Jim Robb at the Livestock Marketing Information Centre. Looking ahead, smaller growth rates will translate into a modest year-over-year increase in US beef production in 2019. If recent cow herd trends persist, 2020 could mark the end of the current US cattle inventory build-up, he says.
USDA’s mid-year cattle inventory report showed that the number of heifers held for replacement declined year-over-year. The declining retention rate and an increase in cow and heifer slaughter point to a significantly slowing herd growth rate, says Mississippi State University economist Josh Maples.
He also notes that cattle inventory cycles are getting flatter. The average trough to peak growth for the four cycles that occurred between 1938 and 1979 was about 20.3 million head. The same average for the three cycles that occurred between 1979 and 2014 was 4.8 million head. For 2018, the numbers are about 5.9 million head above the starting low point in 2014 for the current cycle, he says.
All this contains mostly good news for US producers, beef processors and consumers. Cattle available for feeding and slaughter will increase again next year because the 2018 calf crop will be 2pc larger than the 2017 crop. But the end of herd expansion will mean higher calf prices, probably in 2020.
Beef production will be larger in 2019 and possibly in 2020. Strong beef demand will be vital to take care of these increases. Both the US and Australia will be hoping that demand in Japan and South Korea remains as good as it has been so far this year.