Cattle futures extended gains and edged higher Friday, buoyed by expectations of higher cash prices.
Feeder Cattle futures closed an average of 46¢ higher.
Live Cattle futures closed an average of 26¢ higher, except for 15¢ lower in the back contract.
Negotiated cash fed cattle trade was slow on light demand in Nebraska and the western Corn Belt through Friday afternoon, according to the Agricultural Marketing Service. Although too few to trend, there were a few dressed sales in both regions at $250/cwt., and some live sales in the western Corn Belt at $160.
Elsewhere, trade ranged from inactive on very light demand to a standstill.The previous week, live prices were $156/cwt. in the Southern Plains, $153-$156 in Nebraska and $152-$157 in the western Corn Belt. Dressed prices were $248.
Choice boxed beef cutout value was 36¢ lower Friday afternoon at $264.74/cwt. Select was $2.05 lower at $251.61/cwt.
Corn futures closed mostly fractionally higher to 1¢ higher through Jly ‘24 and then fractionally lower to 2¢ lower.
KC HRW Wheat closed 6¢ to 8¢ lower through Jly ‘24 and then 3¢ lower.
Soybean futures closed mostly 1¢ to 2¢ lower.
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Major U.S. financial indices closed lower Friday with investors apparently fretting that the strong jobs report might tip the Fed back to more aggressive rate hikes.
Total non-farm payroll employment rose by 517,000 in January, according to the U.S. Bureau of Labor Statistics. That was more than the trade expected with an unemployment rate of 3.4%.
Average hourly earnings for all employees on private non-farm payrolls rose by 10¢ in January to $33.03. Average hourly earnings increased by 4.4% over the past 12 months.
The Dow Jones Industrial Average closed 127 points lower. The S&P 500 closed 43 points lower. The NASDAQ was down 193 points.
West Texas Intermediate Crude Oil futures (CME) closed $2.36 to $2.49 lower through the front six contracts.
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Even when mother nature allows, expanding the U.S. beef cow herd will likely be a slow process.
“Recent herd contraction and eventual transition to heifer retention mean it is plausible that U.S. cattle slaughter will decline between 1.0 and 1.5 million head per year for the next four to five years before increasing again,” says Lance Zimmerman, senior analyst of animal protein at Rabobank’s RaboResearch.
In a new report, examining ultimate beef cow herd expansion, Zimmerman explains the annual cow culling rate last year was a record-high 13.4%. He says a culling rate of near 10% is required to stabilize herd size. Zimmerman expects the culling rate this year to be close to 12%.
“That means the best-case scenario is some level of stabilization arriving in 2024, and the timeline from the previous herd expansion suggests it will take until 2025 or later for meaningful rebuilding,” according to Zimmerman.
Among challenges to herd expansion from the production side, Zimmerman cites increasing competition for protein consumers and feed resources, record-high feed and forage prices and rising interest rates.
On the other side of the equation, packers and processors face cost pressure as cattle supplies decline.
“Processors will face a situation that has been relatively foreign to them over the last seven years,” Zimmerman explains. “All classes of cattle supplies will shrink, and the financial viability of packing plants, value-added processors and distributors will be stressed as each participant fights to maintain capacity utilization. Declining cattle and beef production should not lead to additional facility closures. However, battles for market share will intensify and the recent additions in the sector will face additional margin compression, while construction and fundraising for new facilities will face more scrutiny and skepticism.
Despite the headwinds, Zimmerman believes U.S. cattle numbers can recover during the next cattle cycle and challenge the recent beef cow inventory highs near 32 million head.
“But the supply chain should proceed with caution as it looks to the future,” Zimmerman says. “It is going to take time and cooperation to turn recent trends.”