Drought Monitor showed very little change in drought conditions in much of the Southern Plains (U.S. Drought Monitor). New Mexico and Arizona continued to show D0 Abnormally Dry and D1 Moderate Drought conditions and, despite slight improvements, the West continues to be constrained by D4 Exceptional Drought conditions.

Seanicaa Edwards

Recent heavy precipitation (especially in Texas) boosted crop progress; for the week ending May 1, 2016, only 10 percent of U.S. pastures were in poor or very poor condition – down 3 percentage points compared with last year.

In addition, for the same week, 87 percent of topsoil moisture conditions in selected states were reported adequate or better – up 15 percentage points from last year (USDA Crop Progress May 2, 2016).

Although a large number of cattle appear to have been taken off wheat in February and March in response to more rapid wheat pasture development than is typical, decisions by some producers to graze out wheat could have the effect of extending both the number of heavyweight feeder cattle and the period during which they would be available for placement in feedlots.

The most recent Cattle on Feed report showed that placements of 800-pound-plus feeder cattle in 1,000-plus-head feedlots in March 2016 were above year-earlier levels; placements in this weight category have been at or higher than a year earlier since August 2014. Any additional cattle remaining on wheat pasture will likely be placed on feed in April and into early May.

Many of these cattle will be in the 800-plus-pound category when placed on feed.

The heaviest feeder cattle placed on feed in March, April and May will likely go to slaughter beginning in August and continue through fall and possibly longer. If the heavy cattle slaughter continues into winter, it will occur along with slaughter of cattle placed on feed at lighter weights earlier in the winter, potentially creating a fed-cattle bubble and likely supporting second-half 2016 beef production at higher year-over-year levels.

The April Cattle-On-Feed report also showed year-over-year increases in both the number of heifers on feed in 1,000-head-plus feedlots (up 4 percent from April 1, 2015) and the heifer share of total steers and heifers on feed on April 1 (up from 31 percent on April 1, 2015, to 32.2 percent on April 1, 2016).

The increase in the percentage of heifers on feed may point toward a potential slowdown in heifer retention for rebuilding the cow herd, implying a slower pace of herd rebuilding than previously anticipated.

To the extent producers hold back fewer heifers than earlier expected, more heifers may be available for placement on feed. Fed-cattle weights have been declining seasonally, in part a reflection of earlier, seasonally lower cattle placement weights but also reflecting recent incentives to market cattle earlier.

This recent move to earlier marketing reflects a reversal of an earlier move to feed cattle to higher weights as feedlot operators attempted to maximize returns from relatively expensive feeder calves purchased during 2015.

For the remainder of 2016, the availability of forage will likely support placements of relatively heavy cattle in feedlots, while moderating feed prices are expected to support finishing cattle to relatively heavy weights.

Cattle weights are expected to move seasonally higher during the second half of 2016, but a return to more typical marketing patterns will likely preclude year-over-year gains in carcass weights of the magnitude seen in late 2015.

Third- and fourth-quarter 2016 beef production forecasts were raised on expectations of higher steer and heifer slaughter, partially the result of larger calf crops in 2014 and 2015, and a more normal marketing pace during the last half of the year. The annual 2016 beef production forecast is 24.8 billion pounds, up 5 percent from 2016.

Higher beef production will likely carry over into 2017 as expansion continues and more cattle are slaughtered at heavier weights. Annual beef production in 2017 is forecast 4 percent higher year-over-year at 25.8 billion pounds.

Wholesale prices plummet on bearish fundamentals

Wholesale beef prices have yet to gain momentum as the spring grilling season gets underway. Historically, heavy slaughter weights – although weights have decreased noticeably in recent weeks – coupled with larger-than-anticipated weekly cattle slaughter in late April and early May have resulted in growing weekly beef supplies, which have kept wholesale beef prices under pressure.

Weak demand for ground beef products and the popular middle-meat grilling items amid expanding weekly beef production remain a negative force across the entire beef complex.

The choice cutout price for the week ending May 6 was $205.72 per hundredweight (cwt), down $9.79 per cwt from the previous week and $50.89 per cwt lower than last year. The select cutout was reported at $196.49 per cwt, down $9.82 per cwt from the previous week and $48.40 per cwt below last year.

The current fundamentals of the beef complex are the exact opposite of this time last year, with lower prices and higher production. Although retailers will likely take advantage of price declines in featuring beef in June and July, lower prices for competing proteins such as pork and chicken will remain a factor in retailer decisions.

Forecasts higher for all proteins

The USDA published production forecasts for 2017 for red meat, poultry, eggs and milk in the May World Agricultural Demand and Supply Estimates (Figure 1).

As depicted in the figure, production of all animal protein components is expected to increase in 2017. In the aggregate, percent increases in 2017 compared with 2016 are: total red meat (+3.3 percent), total poultry (+2.5 percent), and total red meat and poultry (+2.9 percent). Milk production, adjusted for leap year, is expected to increase 1.6 percent in 2017.

Cattle imports expected to be lower in 2017

U.S. cattle imports for 2016 are forecast at 1.8 million head, 9.3 percent below year-earlier levels on steep declines in cattle purchases from both Canada and Mexico. According to the AMS weekly report, cattle imports from Mexico through May 6 were running about 6 percent below year-earlier levels.

According to the AMS report, through April 23, increases in imports of Canadian slaughter cattle (steers and heifers) have been significant, up 33 percent, while imports of feeder cattle year-to-date are running about 52 percent below year-prior levels. The U.S. cattle import forecast for 2017 is at 1.7 million head or 4 percent lower year-over-year.

U.S. beef exports expected to expand in 2016 and 2017; imports seen lower

U.S. beef exports for the first quarter of 2016 totaled 534 million pounds, 2 percent higher than a year ago. Increased domestic U.S. beef availability for export, lower prices and a weakening U.S. dollar have all contributed to renewed buying interest in U.S. beef globally.

Despite lower first-quarter exports to Canada (-9 percent) and Mexico (-11), first-quarter exports to Japan (+6 percent), Korea (+17 percent), Taiwan (+20 percent) and Hong Kong (+10 percent) were noticeably higher, and it’s expected that U.S. beef will remain in strong demand globally given the attractive prices and decreased competition from Australian beef exports.

U.S. beef exports for 2016 are expected to total 2.5 billion pounds, about a 9 percent increase year-over-year.

Beef exports in 2017 are expected to strengthen as domestic beef production continues to expand and beef prices decline further, increasing exports nearly 5 percent to 2.6 billion pounds. U.S. beef imports for the first quarter of 2016 totaled 793 million pounds, down 10 percent compared to first-quarter imports in 2015.

Through March, U.S. beef imports from Mexico and Canada were 12 and 6 percent higher than the first quarter last year. Imports from Australia and New Zealand were 18 and 4 percent lower than a year earlier. Imports from Oceania are expected to trend lower throughout the calendar year, particularly from Australia given the country’s current tight domestic cattle inventories and expected limited beef availability for export.

First-quarter imports from Brazil (thermally processed beef), Central American countries and Uruguay were also 39, 36 and 27 percent lower, respectively. Second-, third- and fourth-quarter import forecasts remain unchanged from the previous month, bringing the 2016 annual beef import forecast to 2.9 billion pounds. Total beef imports for 2017 are forecast at 2.6 billion pounds, about a 12 percent decline relative to 2016.  

Analysts Kenneth Mathews and Sahar Angadjivand assisted with this report.