With the first half of the year behind us, it is useful to take a look at what has happened and the prospects for the second half of 2013.
Dr. Derrell Peel, OSU livestock economist, reminds us that beef demand has been and remains a crucial question, perhaps even more so in the second half of the year. Currently, Choice boxed beef prices are roughly $127/cwt, about $1 above prices at this time last year.
The difference is that Choice boxed beef prices at this time last year had just made a second unsuccessful attempt to break the $200/cwt level while Choice values this year were above $200/cwt for six weeks in May and June. In addition, Select boxed beef prices are currently about $7/cwt higher than the same time last year meaning that overall carcass values are significantly higher than a year ago.
Boxed beef prices are expected to move higher by the fourth quarter due to declining beef production.
Beef production this year is down just under 1 percent, a smaller decrease than previously expected. Larger-than-expected beef cow slaughter since mid-March has contributed to the smaller than projected slaughter and beef production decreases. Peel says that the most recent weekly slaughter data shows that beef cow slaughter dropped below last year levels for the first time in 13 weeks. While net beef herd liquidation this year seems likely considering what has already occurred, so beef cow slaughter is expected to decrease for the remainder of the year as long as drought conditions do not redevelop significantly.
Cow slaughter and yearling slaughter are both expected to drop sharply in the second half of the year, leading to a 5-6 percent decrease in beef production in the second half compared to the minimal decrease seen so far this year. Total beef production for the year will likely be down 3-3.5 percent for the year.
Fed cattle prices are currently about $120/cwt. compared to just under $117/cwt. this time last year. Fed prices peaked in early May at $129/cwt, close to year ago levels, though the 2012 peak occurred in early March. With indications that cattle slaughter and beef production have peaked seasonally, fed cattle prices could be near the summer low but often move a bit lower in July. Relatively large levels of heavy placements recently may hold fed cattle prices under $125/cwt in the third quarter.
Peel says that fed prices are expected to move back into the upper $120s in the fourth quarter and may end the year near $130/cwt.
Feeder cattle prices have been on the defensive much of the first half of the year with record high feed prices and severe feedlot losses restricting feeder demand. Feeder prices moved lower from February through May compared to the record levels in February/ March 2012. However, feeder markets bottomed in late May and moved higher through June. Feeder prices are still roughly 5 percent lower than this time last year. With lower feed prices and tighter feeder cattle supplies, feeder prices are expected to be higher in the second half of the year compared to the first half. Feeder cattle prices may average close to year ago levels this fall but will average lower for the year due to a weak first half of the year.
Fundamentally the second half of 2013 may look considerably different than the first half. Lower corn prices and recuperation of forage supplies will temper feed costs significantly compared to 2012. Drought conditions have improved considerably in the Midwest and eastern Great Plains, though severe conditions continue in much of western half of the country. Peel indicates that lower beef production and tighter feeder cattle supplies suggest that most all cattle and beef prices will move higher after summer lows that may be already in place or very near.