The slump in live cattle futures has raised a cloud over the US beef cattle rebuild, a leading ag academic said, even as the head of the top US meat group forecast the strongest herd growth in 35 years.
Chris Hurt, professor of agricultural economics at Purdue University, said that the market for live cattle futures had been “surprisingly negative” in falling more than 10% from an April high, to stand on Monday at 147.90 cents a pound in Chicago for the spot August contract.
Last week, the lot set a 13-month low for a spot contract.
Furthermore, futures markets were pricing in a further decline, with the August 2016 contract below 140 cents a pound.
“Lower finished cattle prices over the coming year will put pressure on calf prices as well,” Professor Hurt said.
“The profit stimulus to expand cow numbers is not likely to be nearly as strong as it was in the past 12 months.
“For these reasons, the rapid movement toward beef cow expansion that has been experienced in the past 12 months will likely slow,” and a “rapid rate of heifer retention”, to boost the breeding herd, may not last through 2016,
‘Largest since 1980’
The comments came shortly after Donnie Smith, the chief executive of US meat giant Tyson Foods, citing US Department of Agriculture cattle data out late last month, heralded the prospect of a strong recovery in the beef herd.
“Pasture conditions have recovered dramatically and are supporting the rebuilding of the cattle herd,” Mr Smith told investors.
The USDA data “that beef heifer retention is at 106.5% of a year ago, the largest percent since 1986,” while the proportion of heifers in the herd being fattened on feedlots for slaughter was, at “only 32.5%… a record low”.
“The beef cow herd should have the largest percentage increase since 1980 at 3%, or 750,000 head year over year,” he said.
‘We’ll be ready’
Mr Smith forecast growth of some 1.5% in the supply of fed cattle coming to the market next year.
“Based on the heifer retention we’re seeing today, it feels something like 1.5%, 2% [growth].”
The rate of expansion “might do a little bit better than that 2017 over 2016, but it’s a little bit early to make that call,” he added.
The prospect of extra fattened cattle numbers was a boost to Tyson Foods, in implying extra supplies for its beef operations, which have struggled with setbacks including weak packer margins and export disruptions on West Coast US ports.
“When those cattle come to market we’ll be ready,” Mr Smith said, flagging the positioning of Tyson processing capacity “close to high density [cattle] feeding areas”.
‘A few more years’
Separately, Paragon Economics and Steiner Consulting flagged forecast from the Livestock Marketing Information Center of recovery in overall US cattle numbers to some 100m head by the end of the decade, which would be the highest number in more than 20 years.
“All signs point to at least a few more years of breeding herd growth,” the groups said.
“A larger calf crop in 2016 suggests another increase in 2017’s beef production.”
The analysis group noted that since 1967 there have been four periods of rebuild in the US herd, lasting eight years, three years, six years and, modest recently, three years from 2004-07.
(Source – http://www.agrimoney.com/news/drop-in-cattle-futures-provokes-doubts-over-beef-herd-rebuild–8646.html)