In 2022, drought and high feed costs pressured producers and they saw their profit margins crater which led to herd liquidation, in my opinion. This led to the smallest beef cow inventory in the last 50 years and coupled with historically strong demand saw fed cattle prices surge to record prices in 2023.
For 2024:
1.Cattle numbers continue to decline as confirmed by the Cattle Inventory report released at the end of January. Cattle numbers contracted in 2023, marking the fifth year of a smaller cattle herd. U.S. cattle inventory will likely decline further in 2024, the USDA forecasts.
2.Retention of heifers hasn’t started as slaughter levels and feedlot numbers still show a higher percentage of females in the mix. The January cattle report estimated producers retained 1% fewer heifer replacements for the beef cow herd this year. The U.S. beef cow herd declined 2% with inventories at 28.2 million head at the beginning of this year. Fewer numbers of heifers are expected to calf in 2024. Expansion will likely be delayed once again with lingering drought, high input costs, limited labor availability, high interest rates, and market uncertainty all serving as headwinds against growing the cowherd, in my opinion. The current cattle cycle anticipates slower and more prolonged expansion, with heifer retention causing a supply decline with expected lows in fed slaughter by 2026.
3.Drought conditions improved in some areas but, over one-third of the cow herd was affected by drought in 2023. This kept retention low and led to more liquidation to the cow herd. This could continue to limit retention in the near-term.
4. Cattle on feed in U.S. feedlots on Jan. 1, 2024, was 14.2 million head, 2% higher than 2023 and the number of cattle outside of feedlots was about 4% below 2023 numbers. CattleFax predicted feeder cattle and calf supplies outside of feedyards will be 1 million head smaller than 2023 at 24.1 million head. The tight supplies of cattle outside of feedlots point to lower placements and declining feedlot numbers through 2024, in my opinion.
5. Feeder prices are expected to top 2023’s record prices as feedlots have to bid-up for tighter cattle supplies. If pasture conditions continue to improve, it may lead to increased competition for lighter-weight cattle, increasing costs for stocker operations. Feeder steer prices for 750- to 800-pound calves in 2024 are forecast at $248.50 per cwt, up from $218.69 in 2023.
6.Cattle imports are expected to rise to 2.05 million head in 2024, up from 1.98 million head last year. Although demand from the U.S. will be strong, imports will likely be limited by tighter cattle supplies in both Canada and Mexico.
7.Beef production is forecast at 25.9 – 26.19 billion pounds for 2024, down approximately 3% from 2023. In the first half, slaughter will reflect slightly higher numbers of cattle in feedlots at the beginning of the year, but production will fall as feedlot numbers diminish later in the year, in my opinion. Heavier cattle weights will partly offset lower slaughter numbers.
8.Cow slaughter is expected to decline with improving returns or forage likely to cause producers to retain more cows later in the year.
9.CattleFax forecasted the average fed steer price for 2024 at $184.00 up from the record in 2023 at $175.54. All cattle classes are expected to trade higher. The 800# steer price is expected to average $240.00 and the 550# steer price is expected to average $290.00.
10.All-fresh retail prices are expected to $7.90# for 2024. Higher prices may soften demand, but I believe that consumers will continue to eat beef at respectable levels keeping demand for beef elevated in relation to production.
Trade Idea
Futures – N/A
Options – Buy the August Live 185 calls and at the same time sell the February 2.04 calls for even money.
| LEG25C204:Q24C185[DG] |
| Risk/Reward Futures-N/A Options-unlimited risk here as this is a diagonal option strategy where the short option expires 6 months after expiration of the long call. The goal here is to finance a summer month long call option and using the premium of the short-deferred option to pay for it. Cost to entry is even money minus trade costs and fees. This trade is set up for one who has cattle or looking for coverage into early Summer. |
For those interested I hold a weekly livestock webinar on Tuesdays and my next webinar will be Tuesday, February 20, 2024, at 3:00 pm. It is free for anyone who wants to sign up and the link for sign up is below. If you cannot attend live a recording will be sent to your email upon completion of the webinar.
**Call me for a free consultation for a marketing plan regarding your livestock needs.**
Ben DiCostanzo
Senior Market Strategist
Walsh Trading, Inc.
Direct: 312.957.4163
888.391.7894
Fax: 312.256.0109
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