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Cattle Prices Impacted By Beef Production
DR. ANDREW P. GRIFFITH
KNOXVILLE, TENN.
The most frequent question an agricultural economist is asked is, “what do you think prices are going to do this fall?” Maybe it is not always October and November prices but the question always concerns prices within the next year. The next most common question is, “what do you think about selling in August?’ Again, the month in question may be different from producer to producer, but some variation of this question is common. Regardless of the exact question, livestock producers are concerned with the price they will receive for the product they have to sell which results in much discussion.
Prices of most goods are dependent on supply and demand, and the beef cattle industry follows this paradigm. Supply or beef production is dependent on the number of cattle slaughtered and the weight of the animals at harvest which is impacted by production costs, expectation of future prices, number of sellers in the industry, and technology changes. Similarly, demand for beef products is determined by consumer income, consumer preferences, number of consumers, price of related goods, and future expectations of prices and income.
The supply side is where cattle producers play their role so that will be the focus. Domestic beef production the first quarter of 2017 totaled nearly 6.24 billion pounds which is 7.0 percent (407.5 million pounds) more than the first quarter of 2016 and 4.9 percent (292.6 million pounds) higher than the five year average for quarter number one. The first quarter of 2017 resulted in the highest beef production for that time period since 2011 when beef production totaled 6.38 billion pounds.
Beef production is impacted by the number of animals harvested and the weight of those animals at harvest. Over the first quarter of 2017, federally inspected slaughter has averaged a little more than 585,000 (steers, heifers, cows, bulls) head a week resulting in a total first quarter harvest of 7.6 million head which is nearly 576,000 more head than the same quarter in 2016. The slaughter rate in the first quarter of 2017 is the highest slaughter rate for the quarter since 2013 when many parts of the country were trying to recover from the 2012 drought.
As mentioned previously, harvest weight is also a key factor in total beef production. Weekly average carcass weights (average of steers, heifers, cows, and bulls) the first quarter of 2017 ranged from 817 to 837 pounds and averaged about 9 pounds lighter than the first quarter of 2016. The 9 pound reduction in carcass weight is equivalent to removing a little over 83,000 head of cattle from the production line in the first quarter. Thus, beef production the first quarter of 2017 was moderated due to lighter carcasses.
Beef production is not the only influence on cattle prices. Other meat production such as pork and poultry and their subsequent prices influence beef prices and thus cattle prices. Pork production totaled 6.40 billion pounds the first quarter of 2017 which was 3.1 percent higher than the same time period in 2016. This pork production comes in the way of an average weekly federally inspected hog slaughter of more than 2.3 million head per week. Broiler meat production the first quarter of 2017 is less than one percent higher than the same time period in 2016, but first quarter broiler production is nearly 9.7 percent higher than the five year average for that same time period.
What does this mean for cattle prices? There is a tremendous quantity of meat being produced domestically. When the quantity supplied increases then prices generally decrease. The increased quantity of meat will push beef prices lower with everything else remaining constant. This would mean cattle producers can expect declining cattle prices in 2017, 2018, and possibly 2019. One factor that could support prices is a positive shift in demand. Domestic beef and cattle prices have been supported due to strong export demand the past several months and this is expected to continue through most of 2017. Cattle producers should tighten their belt, but they should not fret too much. ∆
DR. ANDREW P. GRIFFITH: Assistant Professor- Agricultural Economics, University of Tennessee
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