It is the Old Song of Supply and Demand for Beef Prices

By: Donald Stotts, Oklahoma State University

Strong beef demand has mostly been offsetting increased beef supply in 2017 with beef production projected to increase again in 2018 to 27.4 billion pounds.

The projection would be a record level of U.S. beef production, exceeding the previous high of 2002 at 27 billion pounds. In addition, total meat production is projected to surpass 101 billion pounds in 2018, a new record as well.

“Clearly the demand-supply challenges will continue for the foreseeable future,” said Derrell Peel, Oklahoma State University Cooperative Extension livestock marketing specialist. “Still, 2017 has demonstrated that strong domestic and international demand for U.S. beef can mitigate much of the price pressure from growing beef production. Continued strong beef demand can limit 2018 cattle and beef price changes to modest declines.”

The September USDA Cattle on Feed report pegs the September 1 feedlot inventory at 10.504 million head, 103.6 percent of last year. August placements were 102.6 percent of year ago levels.

“Placements were larger than expected and may well provoke a bearish market response, but what may be overlooked is the continued strong pace of marketings,” Peel said. “August marketings were close to pre-report expectations at 105.9 percent of last year. Marketings outpaced placements in August and pulled down the year-over-year increase in feedlot inventories, though not as much as expected.”

For the first eight months of the year, total placements are up 1.16 million head, an 8.4 percent year-over-year increase. However, total marketings were up 0.847 million head, 6.1 percent more than last year and largely offset the increased placements. As a result the September 1 on-feed inventory was up a modest 369,000 head year over year.

Peel said higher feedlot throughput is reflected in the year-to-date increase in steer and heifer slaughter, up 5.9 percent year over year. Steer slaughter is up 3.3 percent while heifer slaughter is up 11.7 percent for the year to date. Additionally, beef cow slaughter is up 11.3 percent so far this year and rising dairy cow slaughter is up 3.9 percent for the year to date. Total bull slaughter also is up 13.1 percent year over year.

“Offsetting increased cattle slaughter is lighter carcass weights,” Peel said. “While steer and heifer carcass weights are increasing seasonally, they remain below year-earlier levels. The data indicates steer carcasses were 896 pounds, 7 pounds below one-year earlier, and heifer carcasses were 816 pounds, down 5 pounds from the same date last year.”

For the year to date, steers carcasses have averaged 14.1 pounds less than last year while heifer carcasses have averaged 12.3 pounds lighter.

Total beef production for the first 36 weeks of the year increased 4.5 percent year over year. Annual beef production is projected at 26.3 billion pounds, a 4.4 percent increase year over year. Domestic beef consumption is projected at 56.6 pounds per capita, a 2.2 percent increase year over year.

“Retail beef prices remain strong despite the increase in domestic beef consumption,” Peel said. “August Choice beef price was $5.94 per pound, down from $6.10 per pound in July but nearly a full percent higher than August of last year. The all-fresh beef retail price was $5.794 per pound in August, fractionally higher than one year ago.”

Bottom line: 2018 is likely to be a year of modest declines in beef prices.