FARE Blog

Food, Agriculture, and Resource Economics

Feedlot Conditions and Beef Prices

by Levi Russell

Any time I discuss economic conditions in the industry, I try to be as faithful as I can to forecasts and current conditions and avoid undue pessimism or optimism. The beef cattle industry from pastures to processors has had a pretty good year so far in terms of prices, international trade, and consumer demand. That said, one of the clearest threats to cow-calf producers in coming months is the potential for a slowdown in feedlot placements. Feedlot profitability (not considering any price risk management) has moved into the red recently, which will likely push feeder prices down. However, there is a more long-term issue to deal with: beef prices.

Lower Beef Prices

Based on forecasts of beef, pork, and poultry production for the next 18 months, we could see some downward pressure in beef prices. Indeed, we’ve already seen some weakness in wholesale beef prices in the last couple of months. If these trends continue, price reductions will eventually make their way to fat steers, then to feeders and, finally, calves. For cow-calf producers, the feedlot sector in particular is of concern. Feedlot placements have been significantly higher for much of this year compared with the same months in 2016. Feedlot marketings have kept pace with placements such that the number of feeders lingering in feedlots longer than 90 days has stayed relatively low. Though this is expected as beef cattle inventories have recovered over the past few years, this accelerated placement pace will not be sustainable if we start to see price weakness for fat steers.

In 2017, U.S. beef production will be at its highest level since 2010. It remains to be seen just how much beef consumers are willing to purchase, but we will find out over the next 18 months.