USDA projects lower beef production this year and next

John Maday, Managing Editor, Drovers CattleNetwork|Updated: September 19, 2012

While there is no question the drought of 2012 has hurt cattle markets both directly and indirectly, the outlook for beef and cattle prices into next year looks positive. This month’s Livestock, Dairy and Poultry Outlook report from USDA outlines several of the forces influencing supplies of and demand for beef and competing meats in the coming months.

Dairy cow slaughter, the report notes, has been running well ahead of last-year’s levels as high feed costs and low milk prices have hammered profitability in the dairy sector. Short feed supplies also drove beef-cow slaughter up as the summer progressed, but the numbers remain below the exceptionally high cow slaughter during 2011 when the drought took hold in the Southern Plains region.

Overall, the agency projects U.S. beef production for 2012 at 25.8 billion pounds, compared with 26.2 billion last year. With cow numbers declining again this year, USDA projects 2013 beef production somewhat lower at 24.7 billion pounds. Per-capita beef consumption this year will total about 57.5 pounds compared with 57.3 pounds last year. Next year, the authors project per-capita beef consumption will drop to 55.2 pounds.

Feeder cattle prices this year generally have run higher than in 2011. The market dropped off during the summer as pasture shortages and high cost of gain in feedyards. Demand for lightweight feeder cattle has picked up recently based on prospects for winter grazing and higher fed-cattle prices next year.

The report estimates Oklahoma City feeder-steer prices will average from $141 to $143 per hundredweight this year compared with $133.74 in 2011. Looking ahead to next year, the report estimates prices will average between $137 and $147 per hundredweight during the first quarter, $139 to $149 for the second quarter and $142 to $152 for the year.

For USDA Choice fed cattle, the report projects an average price of $120 to $122 per hundredweight for this year compared with $114.73 for 2011. During 2013, the report forecasts prices averaging $117 to $127 per hundredweight during the first quarter, $120 to $130 for the second quarter and $122 to $132 for the year.

Prices for all classes of cattle next year will, however, depend largely on what happens with the weather. Better moisture and forage conditions would drive up demand for stocker cattle and potentially for replacement heifers. Every heifer retained for breeding represents a reduction in availability of feeder cattle, fed-cattle supplies and beef production. The report projects that if heifer retention increases over the next few years, it could take until 2015 or later for cow inventories to reach numbers needed to return beef production to current levels.

The report cites three signs that feedyards could be falling behind in marketing cattle, which could negatively affect fed-cattle prices in the short term. The signs mentioned are:

  1. Dressed weights are increasing.
  2. The number of cattle on feed for 120 days or more on August 1 was the highest since August 1996. These numbers could be a result of the many heavy feeder cattle placed earlier this year and the large numbers of under-600-pound feeder calves placed in late 2011.
  3. The five-day average dressing percentage has been running above year-earlier and recent historical levels for most of the summer, suggesting feedyards are holding cattle longer in spite of higher grain prices.