CattleFax analyst Kevin Good told producers attending the NCBA Cattle Industry Convention in San Diego that good moisture and heifer retention numbers will all encourage more production – albeit at a slower pace than the aggressive rate seen in 2015.
The beef cow herd expanded 1.7 million head over the past two years – with 1.1 million of it coming last year. Heifer slaughter as a percentage of total fed slaughter was 32.5 percent in 2015, the lowest rate seen since the early 1970s.
“Cow slaughter will start to pick up but still at a pace that suggests expansion,” Good said.
Placements of cattle began picking up in January and Good said the pattern is expected to continue, with 2016 being “a tale of two halves.”
“The first of the year we’ve got tight supplies from a historical perspective, but we have the potential as we place more of that bigger calf and feeder supply to have larger supplies as we go over the second half of the year.
“So we need to recognize this trend change from tight supplies early on to increased supplies as the second half of year comes.”
Market dynamics will be changing, especially for feeder producers as the year progresses.
“Last year all the cardinal rules we look at were basically negative,” Good explained. “Cattle feeders were losing money through the year weren’t they? We were buying break-evens above the board and in most cases well above what we sell fat cattle for.”
Weights were 3 percent higher on cattle in 2015 with the market paying feeders more to add the weight.
“As we did that, weights increased and by the fourth quarter, we were uncurrent and didn’t have any leverage and paid the price with sharply lower prices to get rid of those cattle we lost leverage on.”
Now the standard factors are turning positive spurred by good weather patterns. Weights on cattle are expected to flatten, Good said, still sparking beef production to go up an estimated 3 percent for 2016.
Total slaughter is expected to go up 800,000 head or 3 percent to 29.6 million.
Fed slaughter will jump 600,000 head or 3 percent, to 23.7 million. Non-fed slaughter will jump 4 percent to 5.9 million. Overall beef production will jump 3 percent or by another 700 million pounds.
Price outlooks for the cattle all appear softer headed into the first half of 2016 as the expansion continues and the abundant beef supplies continue.
“Recognize that we’re in a weather-influenced year,”Good said. “Carcass weights are declining at a faster clip when we look at the fourth quarter of 2015. We are starting to pull cattle forward instead of pushing cattle back. When that occurs, that’s a friendly market for the market.”
Fed cattle prices swung from averages around $162 in the first quarter of 2015, before trending steadily down to $128 in the fourth quarter. But Good said higher supply numbers and total protein supplies have worked a floor into the system.
Moving upward on fat cattle prices will be slow, but a good start to rebuilding leverage. CattleFax predicts an average between $130 and $135 in the coming year, using $117 as a low and $145 as a high around the spring.
“In growing supply years, from a long-term trend standpoint, you tend to have highs in the spring and a fourth-quarter rally not as pronounced as it is in most years,”Good said.
The price for 750-pound feeders should range from $150 to $180 for a $165 average. But with corn holding evenly around $3.75 averages, the prices should create more margin for cattle feeders through the year. “Markets may not be friendly to rallies early in spring,” Good said, “but after the first half, the feeder market buckles down and buys a better crop.”
Bred cow prices are likewise coming off highs that were “a little bit pricey” Good said, especially in relation to the calf market. That range should be between $1,600 to $1,900 after factoring 1.65 by the value of a 550-pound steer.
Starter calves are expected to average $195, with a range moving from $170 to $215. The market hits highs on pre-grass fever, but moves lower into the fall.
“As we move into bigger supplies of calves, long-term trend is going to look soft as we go forward. Nonetheless we think the calf market stays stout enough. That it will support, combined with adequate moisture and feed conditions, continued expansion at a slower pace than we had last year.”
PHOTO: CattleFax analyst Kevin Good outlines beef production increases for 2016. Staff photo.
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