News

Kay’s Cuts: US in the deep-freeze

Beef Central, 14/12/2013

 

A monthly view of the North American beef industry with Steve Kay, publisher of Cattle Buyers Weekly, Petaluma, California. 

 

Steve KayAs you swelter in the heat of an Australian summer, spare a thought for those of us shivering in North America.

Much of the continent has been blanketed with frigid Arctic air for the past week or so. It’s even been freezing where I live in California. The extreme weather is not uncommon. But it hit after a beautiful November in many places so the change felt more abrupt than normal.

Given that nearly all the feedlot cattle in the US are in outside pens, the onset of winter sometimes becomes a market factor. A veteran packer cattle buyer told me years ago that after November 1 each year, the possibility of a ‘weather market’ is always in play.

But such a market only occurs if brutal weather persists for weeks or if massive snowstorms knock cattle around and disrupt their movement to slaughterhouses. Such storms last occurred in 1992-1993 in Kansas and Texas.

The weather forced a one-day postponement of last Monday’s weekly sale of feeder cattle at the famed Oklahoma National Stockyards. But it has so far had little impact on the performance of feedlot cattle. To the contrary, a potential positive is that carcase weights for grainfed steers and heifers have likely put in their seasonal peaks and will now start to decline all the way into the spring.

US market watchers closely monitor weekly carcase weights (as reported by USDA). Both the weights and the size of the national weekly cattle slaughter tell watchers how much beef is being produced and therefore how wholesale prices might perform.

This in turn suggests how much fed beef processors might be able or willing to pay for finished cattle. It’s important to note, however, that the live cattle futures market has been a stronger influence over cash cattle prices in recent months.

Carcase weights’ more important role is to indicate whether cattle feeders are “current” in their marketings, i.e., are selling cattle in a timely fashion. Average carcase weights for steers and heifers have increased several pounds annually for years due to better genetics and productivity gains on the ranch, better feeding techniques and a relaxation of packer discounts for so-called ‘overweight’ cattle.

The single biggest boost in carcase weights in the past two years, however, came from the feeding of two beta-agonist-based feed supplements – Zilmax and Optaflexx. Their widespread use (up to 70pc of all cattle in US feedlots) helped push steer and heifer carcase weights to new record highs late last year.

Zilmax added much more weight than Optaflexx in the last two or three weeks of the feeding period. So when manufacturer Merck pulled it off the market in mid-August after concerns relating to animal wellness, some market watchers opined that carcase weights would decline and the industry would produce much less beef in the fourth quarter than previously forecast.

Others though, including myself, believed that cattle feeders would switch to using Optaflexx and feed cattle longer to achieve the same weight level they would have gotten with the use of Zilmax.

Sharply lower corn prices than a year ago would almost certainly encourage longer feeding.

That’s exactly what has happened. Carcase weights continued to increase in October and November, despite the absence of Zilmax. By the third week of November, steer weights were just one pound shy of their record set a year ago. In fact, cheaper corn appears to have encouraged US cattle feeders and hog producers to feed livestock to record weights.

This is putting more beef and pork than expected on the market. Cattle slaughter for the year to November 30 was down 1.7pc on last year and hog slaughter was down 1.5pc. But beef and pork production were down only 1.2pc and 1.0pc, respectively.

It must also be noted that much of the decline in cattle slaughter is due to fewer beef cows being slaughtered than a year ago.

Drought has finally disappeared from most US cow-calf states, although its impact will linger for another year or so. Most analysts believe that cow slaughter levels in 2014 will continue to decline and that cow-calf producers will hold back more heifers than they sell as feeder cattle.

Both actions suggest that the US will start to rebuild its beef herd in 2014, although any year-on-year increase in numbers won’t show up until 2015.

 

What does it mean for Australia?

More important for the Australian industry are the reduced cow slaughter and the expected decline in US beef production in 2014. USDA has forecast a decline of 1.5 billion pounds (about 670,000 tonnes) or 5.9pc from this year’s total.

Private analysts, though, have production declining by 3.7pc or less. Whichever is closer, any decline means that the US will need more lean manufacturing beef from Australia and will be prepared or forced to pay higher prices to get it.

Imported 90CL is already at a premium to domestic 90CL and I expect this premium to widen in 2014.

The US’s reduced production also means that wholesale beef prices will be higher and that less beef will be available for export, unless US packer/exporters divert even more from the domestic market.

USDA currently has 2014 exports declining 6.5pc from 2013 exports, which it puts as the same as 2012. This augurs well for Australia, as its beef will be more price-competitive with US beef in key Asian markets.

 

 

HAVE YOUR SAY

Your email address will not be published.

Your comment will not appear until it has been moderated.
Contributions that contravene our Comments Policy will not be published.

Comments

Get Beef Central's news headlines emailed to you -
FREE!