ONA REPORT

published in

THE FLORIDA CATTLEMAN AND LIVESTOCK JOURNAL


October 2014

Slaughter Cow Price Outlook


For questions or comments regarding this publication contact: Dr. Chris Prevatt, University of Florida, IFAS


Record high slaughter cow prices during 2014 have left no doubt in producer’s minds that U.S. beef supplies are extremely tight. For most producers, slaughter cow sales contribute approximately 10-20% of the annual income of a cow-calf enterprise. The high slaughter cow prices received by Cattlemen in 2014 have helped further improve the profitability of cow-calf producers.

The market has spent the majority of 2014 searching for a price level that would ration the tighter levels of beef supply. A combination of fewer numbers of slaughter cows coming to town, lighter weights, and exceptional demand for beef has further contributed to record high slaughter cow prices this year. Total cow slaughter is expected to continue to decline in 2014 as improved forage conditions, lower input costs, and record-high calf prices encourage producers to keep all productive animals in their herd. These factors have enabled U.S. slaughter cow prices to reach levels above $100/cwt. and remain above $100/cwt. for most of the year. The current question is “Will this trend continue through the fall, or will the normal seasonal price decline occur from August through November?”
Figure 1 shows the U.S. weekly average breaking utility cow prices per hundred-weight received in 2014, 2013, and a 3-year average of 2011-2013.

or10-14fig1
January 2014: $85.48/cwt.                August 2014: $117.57/cwt.         Price Change: + $32.09/cwt.
Breaking utility cow prices have made a $32.09/cwt. improvement thus far during 2014. Based on this price increase, slaughter cow revenues have increased by approximately $369.04 per head (based on an 1150-pound cow, $32.09/cwt. * 11.50 cwt.).

Figure 2 shows the U.S. average monthly breaking utility cow prices per hundred-weight received from January through August 2014. Prices have ranged from $86/cwt. in January to $118/cwt. in August. Breaking utility cow prices usually peak in the spring, but during 2014, the highest prices received to date have occurred in August while the lowest prices received occurred in January.

or10-14fig2

Figure 2 also shows the 10-year seasonal price index for U.S. breaking utility cows (2004-2013). The price index is simply a ratio of the monthly average prices to the yearly average price over 10 years. The price index ranges from 0.93 in November to 1.07 in May. The price index provides us with a relationship of how prices change during the year based on a 10-year history. The 10-year price index suggests that breaking utility cows will increase in price from January through May, hold somewhat steady during June through August, decline significantly from August through November, and begins to slightly increase during December.
If breaking utility cows follow their seasonal price trend in Figure 2, this would lead us to believe that slaughter cows prices will decline this fall. Assuming  breaking utility cows follow their seasonal trend, the realized U.S. average breaking utility cow market price in November would be approximately $106/cwt. ($118*(0.93/1.03)). Thus, the typical price break expected from August to November would be -$12/cwt. ($118-$106/cwt.). Some decline in slaughter cow prices during the fall months is normally expected (see seasonal price trend) due to a larger number of cows coming to town and the close of the summer grilling season. However, it is doubtful the market will realize the full decline this fall given the limited supply.

What does the future hold for slaughter cow prices heading into the fall? Processors will continue to search for ways to make up for the reduced supply of beef cows. If we assume imported lean beef supplies will remain steady, here are some of the alternatives that may play out during the rest of 2014:

  1. If domestic supplies of slaughter cows going to market increase this fall, this would likely cause slaughter cow prices to decline.
  2. If domestic supplies of slaughter cows remain near current levels, U.S. slaughter cow prices should maintain near their current price range this fall.
  3. If domestic supplies of slaughter cows decrease this fall, this would likely cause U.S. slaughter cow prices to move higher.

Obviously, no one knows with certainty what breaking utility cow prices will be this fall. The level of supply coupled with lean beef demand will continue to determine the direction of slaughter cow prices.



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