Modest beef herd recovery possible, prices remain high

by The City Wire staff ([email protected]) 102 views 

Better pasture conditions have tempered the cattle herd liquidation in the past three weeks after an onslaught of movement between March and June, according to Derrell Peel, Oklahoma State University Extension Livestock Marketing Specialist.

Peel said even with the recent slowing there has been a 3.4% increase in beef cow slaughter this year over the same period in 2012.

In the back half of 2013, Peel expects beef cow slaughter to taper, but he doesn’t think the slowing will be enough to avoid net beef herd liquidation in 2013.

Recent reports on pasture conditions show forage has improved in many locations after two years of widespread drought following by a severe winter which pushed more cattle toward slaughter earlier this year.

To start July, Peel said 51% of U.S. pastures and ranges are in good or excellent condition, compared to only 25% at this time last year. By contrast, this year 25% of pastures and ranges were in poor or very poor condition, compared to 43% last year.

The Drought Monitor indicates that about 28% of the U.S. is in D2-D4 drought, slightly less than the 29% level one year ago.  However, 49% of the U.S. has no drought at all, compared to 29% with no drought this time last year. The Great Plains and Southern Plains have fared much better in 2013 than in the past two years.

But drought conditions persist in the West, with some 70% of pastures in California, Colorado and New Mexico having poor to very poor forage and moisture content.
Total forage production, both pasture and hay, is expected to increase significantly this year compared to drought-reduced production last year.  However hay stocks were hit a record low in December and May reflecting reduced production and increased use the past two years.

Peel said the cold spring has delayed pasture and hay production thus far, resulting in continuing short forage supplies. 

The U.S. Department of Agriculture reported preliminary June hay prices rose 11% over last year at $147 per ton.

Peel said forage conditions and hay supplies are expected to improve in back half of this year, but it won’t likely come in time to stem the liquidation already slated for 2013. He said if enough ranchers decide to increase their heifers and hold back on slaughter amid better pasture and forage conditions, it could set the stage for beef herd recovery to begin in 2014.

Tyson Foods keeps a close eye on cattle supplies as one of the nation’s largest beef packers relying on fed cattle which it slaughters and processes and sells wholesale and retail.

Packer margins have trended weaker in 2013, compromised by tepid consumer demand and record high beef prices.

Meat packer margins averaged $67.41 per head last week, trending down over the past two months from $89.43 at the start of May. The margin is the difference between the value of the processed beef minus the cost of the steer.

Last year packer margins averaged $117 per head, and that was the lowest annual average in more than three years, according to Drovers CattleNetwork.

Beef packers haven’t come close to average margins of $117 this year as they began 2013 in negative territory.

The first three months of 2013,  which correlates with Tyson Foods’ second quarter, was a tough one for beef packers.

Tyson reported net operating losses in its beef segment of $26 million in the quarter. The losses related in part to lackluster demand for its premium beef products which carry higher profit margins.

The cost of a pound of ground beef in several categories hit highs this winter and spring and has come down only a bit since. Regular ground beef cost $3.31 a pound in May and lean ground beef was $4.86, the most recent figures available.  

Memorial Day marks the beginning of the summer grilling season and typically means improved demand for ground beef and sirloin steaks.

Agriculture economists say consumers will shift away from beef toward less expensive meats as beef prices remain elevated throughout the back half of 2013.

Over the past few years retail beef prices have trended higher in the month of May and rose throughout the summer months, according to data from Bureau of Labor Statistics.

While chicken prices have also risen sharply over the past two years they remain considerably cheaper per pound than beef. For instance, skirted steak used to prepare beef fajitas costs $5.39 per pound, the boneless chicken breasts used to prepared chicken fajitas averages around $2.89 per pound – that is a $2.50 per pound savings for those who choose chicken.

GROUND BEEF (per pound)
2013: $3.31
2012: $3.00
2011: $2.69
2010: $2.31

SIRLOIN STEAK (per pound)
2013: $6.79
2012: $6.42
2011: $6.19
2010: $6.14