In The Cattle Markets

Authors:

David P Anderson, Ph.D

Texas A&M

Brenda Boetel, Ph.D.

University of Wisconsin

Kathleen Brooks, Ph.D.

University of Nebraska

Stephen Koontz, Ph.D.

Colorado State University

Glynn Tonsor, Ph.D

Kansas State University

Brian Williams, Ph.D

Mississippi State University

July 18, 2016

In The Cattle Markets

Brenda Boetel, Professor

Department of Agricultural Economics, University of Wisconsin-River Falls

 

Impacts of the Dairy Industry on Beef Markets

The Holstein beef market is an integral part of the beef supply chain.  Derrell Peel pointed out in his Cow/Calf newsletter dated June 20, 2016 how although the dairy cow represents on average only 22 percent of all cows, they have represented an average of 47 percent of total cow slaughter over the last 20 years and 57 percent of total cow slaughter in 2015.  In 2015, dairy cow slaughter accounted for approximately 1.9 billion pounds of beef. 

Obviously, the percentage of beef supply coming from dairy cattle is dependent both on the number of beef animals harvested, which have been low in recent years, and the number of dairy animals harvested, which are more consistent over time.  The dairy industry typically has a more consistent production of animals than beef; however, the dairy cow herd has increased slightly in recent years and 2015 had the largest number of dairy cows, 9.3 million head, since 2009. 

Dairy cow slaughter was up 3.5 percent in 2015 relative to 2014.  Additionally, the dressed carcass weight was up 2.7 percent.  Given the lower beef production in 2015, but the increase in dairy beef production, the dairy industry had a larger impact on the beef market than in previous years. 

Although cull cows have contributed between 7 and 8 percent of the beef supply in the last few years, the largest dairy contributor to the beef sector is the dairy steer supply. The larger the dairy cow herd, the larger the calf crop and the larger the number of dairy steers.  In 2015, the dairy steer calf crop accounted for approximately 13 percent of the United States calf crop and approximately 14 percent of total beef production, or approximately 3.2 billion pounds of beef. 

By far, the largest dairy breed is Holstein accounting for an average of 86 to 90 percent of all dairy breeds. Beef from Holstein steers has often suffered from perceptions of poor quality to industry outsiders.  This perception has changed some with production changes to the calf-fed production model.  By placing calves on feed directly after weaning, the finished carcass is lighter and similar in size to the industry norms.  Additionally, the predictability associated with finishing Holsteins allows for a larger percentage of Holstein steers, as compared to traditional beef breeds, to be graded as Prime rather than Choice or Select.  Depending on the year, between 30 and 35 percent of all Prime beef production in the United States has come from Holstein steers.   

Impacts on the beef markets from dairy animals is significant.  In the last few years, beef production from the dairy sector, including cull cows, dairy steers and heifers, has accounted for between 19 and 22 percent of total U.S. beef production. Due to this large impact, the dairy market and the dairy beef market has impacts on cattle and beef prices.

 

The Markets

Last week saw new lows for 2016 cattle futures.  The industry has been absorbing reports of higher than expected marketings in the second quarter, and sustained high slaughter rates for the remainder of the year.  The USDA increased its beef production forecast to be 5.3 percent higher than 2015, with another 3.4 percent increase in 2017.  Beef export expectations were also increased and USDA expectations are for 9 percent increase over 2015 and another 4.5 percent increase in 2017.  Unfortunately, hot weather has weakened domestic beef demand slightly. 

On Monday, July 18, 2016 live cattle futures closed 57.5 to $1.525 higher with the lead August contract leading gains. The dressed beef market was not supportive though and wholesale trade saw Choice beef drop $1.73 and Select declined 48 cents on decent movement of 68 loads.

Corn prices have seen recent increases.  Causes for the increases include last week’s Supply and Demand report showing lower than expected carryover, the higher than expected export inspections, as well as the hot weather and continued forecast for high temperatures.