Cattle on Feed Patterns – 2023

By Katelyn McCullock Director of Livestock Marketing Information Center

On Dec. 1, cattle on feed hit the lowest December figure since 2016. Placements were higher than expected, which helped boost this number, but generally speaking the number of cattle on feed is expected to decline into 2023. Drought induced placements in the late summer and fall of 2022 will keep cattle on feed numbers from breaking off sharply until those cattle have been marketed. LMIC expects sharp declines for cattle on feed numbers not to occur until the second or third quarter of 2023.

In the last cattle cycle, cattle on feed inventory rose substantially in 2011 to reach more than 12 million head on feed, a 15% increase from the low in that year. Through the spring of 2012, cattle on feed numbers lost about 1-2% every month from the prior month, before dropping 3.5% month over month in June. New calf crop placements did allow total on feed numbers to rise from the lowest levels over the summer, but December 2012 was 5.8% less than 2011’s figure.

This year cattle on feed numbers have been building in the fourth quarter which is a normal seasonal pattern, but often December is the high point of the year. However, in 2021 and 2022 it has not been. December 2022 was half a million head under the high point of the year — February. This was about a 4.2% drop within the year. Smaller calf crops in 2022 and expected in 2023 point towards the long-term downward trend of smaller numbers of cattle on feed. The seasonal pattern will likely show smaller declines in the first quarter of the year though and a low in the summer before the 2023 calf crop is placed. That would imply the tightest cattle supplies for the year will likely hit in the summer of 2023 and may pose a strong counter-seasonal price move similar to 2022. This pattern has happened in the last two years where the summer quarter has started the rally into the close of the year and mirrors other declining cattle supply situations.

Management decisions at the feedlot may result in cattle being pulled ahead or held longer depending on a variety of circumstances, but the real wild card to cattle prices will be demand in 2023. There is a relatively bleak economic picture that has developed over the rest of the world, and it remains to be seen how much the U.S. will be impacted. There will very likely be some demand impacts. Economists have been noting the potential for some time that consumers may swap beef in their shopping cart for other proteins, but we have not seen much evidence of that so far. However, the household financial picture continues to deteriorate: rising revolving debt, lower savings rates, higher interest rates, and high inflation are all feeding into that picture.

LMIC is forecasting fed cattle prices moving exponentially higher in the next two years with the annual average peak being in 2024 or 2025. Projected supplies will continue to decline in 2023, and the cow herd is unlikely to move into an expansion phase very quickly based on the volume of heifers moving through slaughter channels. But the other component is, should cattle supplies and a recovering economic recovery overlap, the impacts to fed cattle prices will be stronger and add fuel to the upside on prices.

Drought continues to be in the back of everyone’s mind and another round for cowcalf country would continue to push the LMIC timeline for peak prices out another year (2025). For feedlots, drought would mean enduring high feed prices and more careful management of input prices. Feeder cattle prices would be in a tricky spot of high feed costs limiting upside potential and short cattle supplies limiting downside price risk. Which one wins out in the push-pull side of that equation might depend on demand for beef in the medium and short term, but in the long run, smaller calf crops will favor feeder cattle prices increasing year over year for the next few years.

Higher Prices and Opportunities in 2023

By Mike Miller and Patrick Linnell CattleFax

At the start of 2023, cattle producers are in a more favorable position than any time the past several years. In the final week of 2022, the cash fed cattle market rose to not only the highest price of the fourth quarter, but the highest price of the year. Historically, ending the year on such a strong note tends to be a positive sign for the following year. Leverage has shifted back in the favor of the producer, which sets the stage for improved cow-calf profitability over time.

The U.S. cattle inventory increased by 6.3 million head from 2014 to 2019. That inventory has since declined by about 4.7 million head, confirming that the cattle cycle is still relevant. Overall inventories are expected to decline the next couple of years.

Fed slaughter dropped off significantly in December, even beyond the aggressive decline that was forecast. At the same time, the fed cattle market strength to close the year was a clear reflection of a tightening front-end cattle supply. The expectation of a stronger fed market in 2023 was already well-established. The market is also expected to unfold with a more traditional seasonal price pattern, much different than the last several years.

Steer and heifer slaughter is expected to decline substantially in 2023. Cow slaughter is also set to drop from the 2022 cycle highs. Combined, these factors will lead to a decline in overall beef supplies in the next several years.

The forecast for a higher and more seasonal fed market is driven predominantly by fed slaughter expectations. The chart attached outlines the current slaughter forecast, which currently calls for a roughly 750,000 head decline from 2022. This is the result of declining on-feed inventories and a reduced feeder cattle supply.

While strong packing margins boosted slaughter to start the year, expect a notably reduced slaughter pace in the coming months. Fed cattle supplies are seasonally the tightest in January to April, while the placed-against supply and carryover are also starting the new year much smaller than recent years. The reduced fed cattle supply was a primary reason for the smaller slaughter and strong price trend in December.

The tighter fed cattle supply will limit downside price risk in the coming weeks through this seasonal weak spot for the fed cattle market. The post-holiday slump is more likely to manifest this year in the form of limited upside rather than substantial downside. The mid-$150s should provide strong support on a U.S. average basis.

Beef demand remains strong both domestically and internationally. Beef prices were less volatile in 2022 and will continue to move higher on average in 2023. As spring beef demand approaches, expect the fed market to resume the uptrend.

Steer & Heifer Slaughter

Tighter fed cattle supplies and reduced beef production from recent years should outweigh demand challenges, moving beef and cattle prices higher. As a result, the spring rally in fed cattle prices has potential for highs up into the mid-$160s.

A seasonal market implies a meaningful price decline from the spring highs into the summer lows. Fed cattle supplies will remain below year-ago and cattle feeder leverage much stronger. However, the largest fed cattle supplies will occur in the late spring to early summer.

The beef will be pressured off the spring highs and leverage will need to incentivize a larger slaughter pace compared to early-2023. There are plenty of variables that can move between now and early summer, but the current expectation is for summer price risk to the low $150s.

Bottom line: Calves, feeder cattle, fed cattle, breeding females and bulls will all bring higher prices in 2023. There remains inflation, weather and input cost risk, however the change in supply and the associated price move should provide better profit opportunities in 2023.