However, despite an adjustment to lower the steer and heifer slaughter in the fourth quarter, and an extra weekday available in the quarter to slaughter cattle, the steer and heifer slaughter rate per weekday in the fourth quarter is expected to remain above levels for the same period last year.

The 2019 beef production forecast was lowered by 100 million pounds to 27.8 billion pounds. The adjustment reflects fewer-than-expected cattle placed in feedlots in third-quarter 2018, thereby reducing the expected number of fed cattle marketed and slaughtered in early 2019.

According to the latest National Agricultural Statistics Service (NASS) Cattle on Feed report, in September there were 4.7 percent fewer cattle placed in feedlots but 3.6 percent fewer cattle marketed than last year. As a result, there remained 5.4 percent more cattle on feed than a year ago, which supports the expectation of strong marketings in first-half 2019.

Cattle available outside feedlots fractionally higher

The ERS webpage Livestock & Meat Domestic Data has a table titled “Feeder Cattle Supplies Outside Feedlots.” The table estimates the number of cattle available to place into feedlots on Oct. 1 at 30.1 million head, only 0.06 percent larger than this time last year (at the time of this writing). This suggests about the same number of cattle are available to be placed into feedlots as were placed a year ago. Winter forage seems to be in better condition than last year, which could provide a home for these calves to stock over the winter.

While this may be a positive sign for feeder calf prices in the coming months, limiting factors are the record numbers of cattle already on feed (since reporting began in 1996) at the beginning of October and expectations of higher feed prices. In addition, cattle are staying on feed longer than last year (see Figure 1).

The higher number of cattle already in feedlots may limit the competition from feedlots for ownership of these calves, and higher feed prices may limit feedlot management’s willingness to pay higher prices for calves.

During October, Oklahoma City National Stockyards reported the highest monthly average price in 2018 for 750- to 800-pound feeder steers. Typically, feeder calf prices are higher in the second half of the year, but they tend to reach their peak in midsummer. Since weekly prices peaked on Oct. 1 at $159.71 per hundredweight (cwt), they have fallen more than 9 percent to $145.29 per cwt on Nov. 12.

The forecast for fourth-quarter 2018 feeder steer prices is unchanged from the previous month at $151 to $155 per cwt. However, the 2019 annual price forecast was lowered to $140 to $151 per cwt on slightly higher anticipated feed costs and continued large feedlot numbers.

Beef demand resilient in second-half 2018

Since early August, wholesale Choice beef cutout prices have avoided the seasonal third-quarter slump of the past two years and have stayed well above year-earlier levels. In fact, the weekly beef cutout price for the week ending Nov. 9 has climbed to within June price levels despite higher year-over-year beef production for third-quarter 2018 and higher expected production in fourth-quarter 2018.

As depicted in Figure 2, fed steer prices have also avoided a seasonal dip in the third quarter; this year’s seasonal dip was almost nonexistent, and prices have remained fairly flat since June, staying in a range of $109.90 to $112.20 per cwt with an average of $110.91 per cwt.

As cattle on feed numbers built up in the first half of the year, the higher year-over-year percent of cattle on feed over 150 days likely reflected feedlot operations’ resistance to accepting low prices in the face of poor returns. Although the percentage of cattle on feed over 150 days has declined seasonally, it remains within historic norms.

From last month, the forecast for fourth-quarter 2018 price for fed steers in the 5-area marketing region was raised to $112 to $116 per cwt. In addition, the first-quarter 2019 fed steer price forecast was raised to $118 to $126 per cwt.

September closes out record third-quarter beef exports

U.S. beef exports increased in September 2018 by 16 million pounds from 2017 to 259 million pounds (+6.6 percent), which capped off record third-quarter exports at 826 million pounds. Among major destinations, increases during September were to South Korea, Taiwan, Mexico, Hong Kong and Vietnam, and declines were to Canada and Japan. Exports to Hong Kong increased in September after five consecutive months of below year-earlier levels.

Year-over-year exports have increased to markets outside major destinations as well. In third-quarter 2018, volume increases were mostly to key Asian markets due to continued demand strength: South Korea (+56 million pounds), Japan (+14 million pounds) and Taiwan (+13 million pounds).

Cumulative 2018 beef exports are 13 percent higher than year-earlier levels (see Figure 3). Greater U.S. beef supplies, a relatively weaker dollar against key Asian trading partners during the first half of the year and strong demand in overseas markets have driven the competitiveness of U.S. beef so far in 2018.

The fourth-quarter 2018 export forecast was revised upward by 15 million pounds to 835 million pounds. This adjustment was based on the USDA Foreign Agriculture Service’s October weekly export sales estimates, which are higher than year-earlier levels, as well as a seasonally higher fourth-quarter trend. As a result, the 2018 annual forecast is expected to reach 3.19 billion pounds. The 2019 export forecast was adjusted upward by 20 million pounds in the second half for an annual total of 3.265 billion pounds.

Third-quarter 2018 beef imports below year-earlier levels

Beef imports in September 2018 were up almost 4 percent from year-earlier levels to 239 million pounds, with third-quarter imports totaling 807 million pounds, fractionally down from the same quarter last year. Among major suppliers, higher year-over-year imports in September from Brazil, Canada and Nicaragua more than offset the declines from Australia, New Zealand, Mexico and Uruguay.

As lean beef prices in the U.S. are weaker due to an increased supply of domestic fresh lean, Australia is likely to push more shipments to Asian markets due to price competitiveness. However, higher first-quarter 2018 imports fully offset the declines in the second and third quarters (see Figure 4), lifting the year-to-date import volume fractionally above year-earlier levels.

Based on the pace of imports implied by the third-quarter import data, the 2018 forecast was lowered slightly from the previous month’s forecast to 3.014 billion pounds. Based on the slowing pace of late 2018 imports and expected tighter exportable supplies available from Oceania during 2019, the 2019 import forecast was revised downward by 40 million pounds to 3.06 billion pounds.

Cattle exports forecast higher

U.S. cattle exports in September 2018 totaled 26,235 head, more than doubling from September 2017. Year-over-year higher exports in each month in 2018 have pushed year-to-date exports up 50.8 percent to 147,805 head. Increasing feeder cattle demand in Canada, along with higher feeder cattle prices compared to the U.S., are likely to sustain U.S. cattle shipments to Canada.

Based on the current pace of Canadian demand and anticipation of sustained demand through next year, U.S. cattle exports in 2018 and 2019 were revised upward by 20,000 head in each year to 210,000 and 215,000 head, respectively.

Cattle imports in September 2018 were 117,718 head, up 16,725 head year-over-year. Year-to-date, September 2018 imports were 4.2 percent above year-earlier levels to 1.329 million head. The previous month’s annual forecast is unchanged at 1.885 million head. The cattle import forecast for 2019 is also unchanged from the previous month’s forecast at 1.96 million head.  

Analyst Lekhnath Chalise assisted with this report.

Russell Knight is a market analyst with the USDA – ERS. Email Russell Knight.