Record prices, but negative margins

by Editor fleischwirtschaft.com
Tuesday, January 24, 2012

Through the week of December 31, cumulative weekly federally inspected cow slaughter was approximately 5% above the same year earlier period, and was more than 14% above same period in 2009.

Total annual commercial cow slaughter has been observed at current levels only one time since 1987 - in 1996, also a drought year, according to the Livestock, Dairy and Poultry Outlook from the US Department of Agriculture's Economic Research Service. Commercial cow slaughter in 2011 is on track to equal around 17% of the January 1, 2011, cow inventory compared with 14.9% of the January 1, 1987, cow inventory and 16.3% of January 1, 1996.

The drought affected an area accounting for roughly 40% of the national beef cow inventory. For the most part, the other 60% of beef cows in the US enjoyed average or better pasture conditions, and adjustments to their cow inventories could offset to some extent what happened in the south. Despite the most severe drought in recorded Texas history, record-high corn prices throughout 2011 and recent rains have supported feeder cattle prices, producing several records and pushing some lighter weight feeder cattle prices to US$200 or more per cwt.

Calves from heifers retained for breeding in 2012 will not be ready for slaughter until 2014 or later. Producers' resolve to retain heifers to increase cow herds could likely be tested as heifer prices rise in the face of increasing demand for feeder cattle over the next few years.

Through November 2011, net placements of feeder cattle in feedlots of 1000 head or more averaged 2% higher than the 2010 average. Net placements in 2010 averaged over 5% higher than 2009 placements. November marketings of fed cattle from 1000-plus-head feedlots were less than 1% below year-earlier marketings. However, marketings for all of 2011 are likely to exceed 2010's marketings.

For the second half of 2012 and beyond, the outlook for steer and heifer prices is slightly more bullish as second-half 2012 slaughter is expected to be lower than second-half 2011 slaughter. Activities in feedlots of less than 1000 head could alter this scenario.

Wholesale beef cutout values have been up and down for much of the year.

Although cutout values in 2011 have been at levels well above both 2010 levels and the three-year average, except for a period in March and again during late May through September, packers have been unable to maintain sufficient pressure on cattle feeders to lower fed cattle prices enough to widen wholesale margins.

And despite record retail prices, packers have also been unable to pass enough of the higher prices through to retailers to keep average packer margins in the black. Retail prices in 2012 are expected to surpass 2011 prices, but by how much will depend on the economic recovery, beef imports, and prices for pork and poultry.
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