Recent weekly federally inspected cow slaughter has declined significantly for both dairy and beef cows compared with similar periods during the first half of 2013. Year-over-year declines in cow slaughter have been dramatic during the second quarter of 2014, and commercial cow slaughter is on track for a year-over-year decline in the 13 percent range for the first half of 2014.
Declines in cow slaughter are anticipated to continue during the third and fourth quarters of 2014, especially if precipitation continues to improve pasture conditions in major cow-calf and stockering areas.
Cow-calf producers will be able to retain their remaining cows, and stocker operators will be able to stock their pastures. Further support for reduced cow slaughter is also expected from favorable dairy returns, which could encourage some dairy herd expansion.
Feeder cattle prices have continued their upward march, bolstered by both demand for feedlot cattle and pasture demand. However, if recent auction sales are indicative, demand for lightweight pasture cattle may have been temporarily fulfilled, as indicated by moderating prices, while demand for feedlot replacements has continued to push heavyweight feeder cattle prices higher.
The continuing demand for feedlot replacements may be a result of the withdrawal of heifers from feeder cattle supplies as heifers are retained for rebuilding cow inventories.
As pastures improve with additional rains, heifer retention for cowherd rebuilding could increase, which could reduce feeder cattle supplies further, supporting feeder cattle prices. In addition, many stocker operators now have both pasture and incentives to retain feeder cattle to heavier weights before selling them to cattle feeders.
Despite declining corn prices, cattle-feeding breakeven levels are increasing rapidly as feeder cattle prices rise. While fed cattle prices are also rising, they are being hard pressed to stay ahead of breakeven levels, and futures markets are not currently providing opportunities to cover these increasing costs.
Wholesale beef prices have also increased, setting sequential records in January, March, June and July 2014. Further, as retail prices for choice beef continue their sequential record march upward, concerns will likely increase over the level at which consumers will begin to push back against the high prices. With the end of the grilling season in sight, these concerns will likely be realized – but at what price levels and how sustainable will those levels be in the face of anticipated tight supplies of fed cattle? Declining unemployment and an improving economy will mitigate consumer pushback to some extent.
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Cattle imports higher in 2014, 2015
U.S. cattle imports through May 2014 were nearly 7 percent higher than a year earlier. Imports have accelerated from Canada as higher U.S. feeder cattle prices draw cattle across the border (see figure).
Feeder cattle imports from Canada have risen 38 percent this year, offsetting a 5 percent decline in slaughter cattle. Beef imports from Mexico, which consist almost entirely of feeder cattle, were almost 2 percent lower than a year earlier.
Despite higher prices on offer, Mexican cattle shipments have been limited by thin inventories after several years of herd liquidation. Imports weakened during 2013 and have yet to fully recover in 2014. The forecast for U.S. cattle imports in 2014 was raised slightly to 2.075 million head, about 47,000 head above 2013. Imports are forecast to grow slightly in 2015 to 2.1 million head as lower U.S. inventories are likely to keep demand strong in 2015.
Beef imports continue strong pace
U.S. beef imports continued to strengthen during May and were 20 percent higher for the month than a year earlier (see figure). Beef production is expected to decline 5 percent in 2014 due to lower cattle supplies, and lower cow slaughter, in particular, will increase demand for imported processing-grade beef.
Weekly federally inspected cow and bull slaughter through the end of June was about 13 percent lower than a year earlier. Imports during the first five months of the year were 8 percent higher overall, including strong shipments from Australia (+33 percent), Canada (+10 percent) and Nicaragua (+13 percent).
Shipments from Australia have been especially robust as Australian beef production through May 2014 is 9 percent higher than a year earlier. Production has risen as prolonged drought and resulting poor pasture conditions continue to cause heavy herd liquidation. Imports have declined from Uruguay (-22 percent), Brazil (-21 percent) and New Zealand (-2 percent).
The forecast for U.S. imports in 2014 was raised to 2.521 billion pounds, a 12 percent increase from 2013 levels. While imports during the first quarter of 2014 were only 1 percent higher than the 2013 level, higher demand for processing beef is expected to increase imports 20 percent during the second quarter and 19 percent during the third quarter compared with last year.
Imports should remain strong through 2015 as herd rebuilding will limit growth in U.S. beef production next year. The forecast for 2015 beef imports is 2.560 billion pounds, almost 2 percent higher than 2014.
Beef exports strengthen to Mexico, weaken to Japan
U.S. beef exports through May 2014 are up 6 percent from a year earlier. Exports have strengthened to Hong Kong and Mexico, offsetting weaker shipments to Canada, Japan and Taiwan (see table). Although exports to Japan had been running above year-earlier levels through April, they weakened in May. Imported beef stocks in Japan are well above year-earlier levels, and consumption is stable.
Exports to Mexico have risen this year, with shipments during May 48 percent higher than the previous May. Second-quarter exports were raised by 10 million pounds due to stronger demand from Hong Kong and Mexico.
The forecast for U.S. beef exports in 2014 is 2.518 billion pounds, almost 3 percent lower than 2013. Despite stronger shipments during the first five months of the year, exports are expected to fall during the remaining months.
Production is forecast to fall nearly 5 percent in 2014 and then 1 percent in 2015 due to reduced cattle inventories and higher heifer retention for herd rebuilding. Prices, which have risen as a result of lower supply, are likely to dampen export demand over the forecast period. The forecast for exports during 2015 is 2.425 billion pounds, 4 percent lower than 2014. 
Kenneth Mathews is an analyst with USDA-ERS.
USDA-ERS analysts Sahar Angadjivand and Lindsay Kuberka contributed to this report.
