Wholesale prices moderate

Historically small cattle inventory numbers continue to support high beef prices in 2015, but at least in the short term, increasing import volumes of processing beef and heavy carcass weights have moderated wholesale boxed-beef prices. After topping $260/cwt in May, the weekly choice cutout value has declined and is now trading around $250/cwt (as of the week ending June 5th). The current declining price trend could motivate cattle feeders to return to their behavior of withholding cattle from the market as they continue feeding cattle to heavier weights "until prices move higher;" a strategy that has sometimes worked in the past.

Fed cattle live and dressed weights remain significantly heavier than in the previous year, due in part to improvements in forage and pasture conditions, timely rains across Texas and Oklahoma, and the extra time on feed due to reduced steer and heifer slaughter this year. Incentives exist for cattle feeders to hold out for higher prices by continuing to feed cattle to heavy weights.

One uncertainty is the extent to which feeding cattle to heavier weights will offset the decrease in slaughter numbers in 2015 and the ultimate effect this will have on total commercial beef production; reduced slaughter led USDA to revise 2015 commercial beef production to 24 billion pounds. In 2016, U.S. beef production is expected to increase moderately due to cattle inventory numbers that began increasing in 2015 and the effects of heavier average carcass weights.

However, it is important to note that while seasonal increases in cattle slaughter and beef supplies may result in downward pressure on wholesale prices, this is not necessarily the case for seasonal patterns in retail prices. While retail prices tend to decline seasonally into summer, they often do so at a much slower rate than wholesale prices. USDA\ERS reported April retail beef prices at an all-time record of $6.40 per pound. USDA anticipates retail beef prices will remain relatively high through 2015 and 2016 as it will take time for cattle inventories and beef production to grow enough to cause noticeable declines in retail prices. At the same time, retail pork and poultry prices are expected to remain competitive.