A trio of USDA reports due Friday afternoon will be watched for clues a historic cattle-market selloff has run its course.
Through Wednesday’s close, August live-cattle futures have dropped over $24 since June 25, a stretch that included a record, 15-day losing streak, while August feeders shed more than $32 over the same stretch. The collapse in the futures market has been echoed in the cash market, with steers for slaughter averaging $232.00 so far this week, down $37.63 from the weekly average cash price notched just a month ago. USDA is scheduled to release a slew of reports on Friday afternoon that will provide an update on the supply picture for both cattle and beef, having ramifications for price action following the peak of grilling season.
Cattle Inventory
The Cattle report is a bi-annual release issued by the agency each January and July. It provides an update on the size of the U.S. cattle herd, as well as details on the class and weight of the animals. It also provides a look at the calf crop over the first half of the year is provided. The Cattle report is the most intuitive of the three to be released on Friday. Comparisons to the total herd size to previous years will show whether the herd has started to grow or has continued to shrink having already contracted to a 75-year low. While high prices will typically result in increased supply in the long-run, limited forage due to ongoing drought and the declining number of ranchers has limited the ability for the herd to recover compared to previous cycles.
The cattle herd on July 1 last year was estimated at 93.9 million including all cattle and calves, with milk cows being the only class to notch an increase year-over-year, showing the influence that beef-on-dairy genetics have had on the supply picture. Last year’s report also estimated a calf crop of 32.9 million head total, with 24.2 million of those born in the first half of the year.
It should also be noted that the July dataset is limited compared to the January report. Data for July only began to be collected in 1973 whereas the January series dates to 1867. The July survey has also been cancelled multiple times over the past decade due to funding issues.
Cattle on Feed
The monthly Cattle on Feed report is also scheduled for release on Friday afternoon. A very dry winter and start to spring in the Plains led to placements spiking early in the year, leading to expectations for lower placements throughout the summer months as cattle were pulled from winter grazing earlier than normal.
Analysts polled by Reuters, on average, expect inventory in feedlots to be 2.3% above year-ago levels, or roughly 11.38 million head. Placements are expected to be 2.3% lower from last year, but are offset by marketings expected to decline by 2.8% resulting in total inventory being higher than last year. The trend of packers favoring heavier cattle has led to animals spending more time in feedlots, which has helped cattle-on-feed inventories remain somewhat near normal levels despite the historically low total herd size.
This month’s report is a quarterly, too, meaning an update on the amount of cattle in feedlots that are heifers and steers will also be provided. A decreasing percentage of heifers in feedlots typically indicates herd rebuilding may be occurring as producers opt to hold on to future breeding stock. That metric has indicated weak, if any signs of herd rebuilding in recent history. Last April’s report showed the metric moving lower to 37.3%. While the move to less heifers in feedlots is friendly, that figure remains near the 37.7% observed in 2019 when the herd began its most recent trend of contraction. Lower heifer slaughter numbers this year point to another potential decline of heifers seen in feedlots, though the degree of the change and whether it indicates significant rebuilding remains in question.
Cold Storage
The monthly Cold Storage tends to attract less media attention, but still offers valuable insights to the processing side of the supply chain. The survey measures stocks of beef, pork, and numerous other commodities stored at temperatures below 50 degrees.
Beef production is down approximately 6% year-to-date, while frozen stocks of beef are down only 1% as of the most recent report. The discrepancy between production and storage indicates that consumer demand may be softening more than thought. Inflation in beef has cooled in recent months but prices are still rising year-over-year, impacting consumers that are already feeling the squeeze from higher prices at the pump and across many sectors of the economy. A continuation of ample beef stocks could work to limit prices in wholesale boxed beef.
All three reports — Cattle Inventory, Cattle on Feed, and June Cold Storage — will be released at 2 p.m. CT on Friday.
Packer Margins
Outside of the data, packer margins will also influence markets moving forward. Packers have faced long stretches of losses recently, with cattle prices recently trading at all-time highs while choice boxed beef has turned lower after reaching the $400 mark multiple times over the past year. Sterling Marketing estimates that packer margins last week averaged -$293.83 a head, up mildly from -$311.11 the week prior but down sharply from last year at this time when margins were still negative at -$180.19 a head.
As cattle prices have fallen in recent weeks, boxed beef has done the same. This means that packer margins have likely failed to turn positive at the time of publication. Ranchers in the western U.S. are seeing hot, dry weather which takes more of a toll on the heavier framed cattle, and may provide packers leverage to continue to drive cash trade lower to recoup some of their losses. Firm consumer demand that allows for boxed beef to see a sustained push above $400 would be one key to helping cattle restart their rally and overcome the recent highs set in late June.
