A monthly column written for Beef Central by US meat and livestock industry commentator, Steve Kay, publisher of US Cattle Buyers Weekly

THIS coming year will see the US and Australian beef industries continue to go in opposite directions, as they did last year.

The US will see a further contraction of its beef cow herd after four years of liquidation, which will mean reduced slaughter and beef production levels. In contrast, Australia will see a further rebuilding of its cattle herd and higher slaughter levels than in 2023.

Australia will thus take advantage of the reduced US output, as two prominent analysts have noted on Beef Central in recent weeks.

With only weeks remaining, 2023 will be remembered as a year that was full of promise for the US industry until the fourth quarter. The quarter is not quite over, but so far it has not treated the cattle and beef complex kindly.

The five weeks from the third week of October saw a US$9.38 per cwt live decline in fed cattle prices and a US$9.89 per cwt decline in the weekly comprehensive boxed beef cutout in four weeks from the last week of October.

Alarmingly, the buildup to the Thanksgiving holiday on November 23 and the week after failed to give the markets an expected lift.

The US beef complex will now be hoping that beef demand at retail, foodservice and export levels will all increase significantly.

While there is evidence of a slowing in beef demand, this was exacerbated by the arrival of turkey season, says Andrew Gottschalk, HedgersEdge.com. It is essential that post-Thanksgiving demand shows improvement. But domestic demand for the Christmas and New Year holiday period has been slow in developing.

The same can be said for holiday export demand. Growing concerns over a modest post-New Year recession may be partially responsible, he says. Uncertainty is the enemy of all markets, serving as a catalyst to slow consumer spending. There are no shortages of crosswinds in the US and world economies at this time, he says.

The fourth quarter thus far has not treated the US cattle complex well, with lower prices across the spectrum, says Gottschalk. The last time fourth quarter prices averaged below third quarter levels was in 2016. Slower than expected beef sales domestically and especially for export underly this weakness. The most recent year when December prices averaged below November levels was in 2017. Additionally, only one year since 2008, 2015, recorded a lower first quarter average price basis western Kansas than the prior fourth quarter price, he says.

Negative US packer margins for three months

Weakness in live cattle futures prices, negative packer margins and smaller than expected steer and heifer slaughter all combined to drag down cash live cattle prices last month. The December live cattle contract declined from US$184.67 per cwt on November 2 to US$169.10 per cwt on December 1.

US packer margins have been negative for 11 consecutive weeks since the week ended September 22. Cash live cattle prices have fallen sharply also due to cattle feeders with hedged cattle accepting lower prices to take advantage of the positive basis between cash and futures prices.

Meanwhile, the outlook for reduced live cattle supplies in the first quarter has been reversed because of smaller feedlot marketings than expected. October marketings at 1.758 million head were 2.6pc below last year and were 0.6pc smaller than analysts’ average forecast.

More important, they were 7pc below last year after taking into account one more slaughter day this year than last year. The slow pace means the front-end supply of cattle will remain above year-ago levels into the second quarter next year. The November 1 Cattle on Feed total of 11.931 million head was 195,000 head higher than a year ago and was the fourth largest total for the date (only 42,000 head below the record).

October marketings represented a decline of 46,000 head from a year ago and a decline of 88,000 head versus the previous five-year average, says Gottschalk.

Needless to say, lack of aggressive marketings is the principal cause of the ongoing build-up in front-end cattle supplies. Marketings in September and October fell 243,000 head below the same time frame of a year ago, with total harvest days being the same. Marketings must accelerate to limit eventual selling pressure, he says.

US feedlot front-end supplies (those on feed 150 days or more) project to remain above year ago levels and above the previous five-year average going into the second quarter, says Gottschalk. They will likely trend like this throughout the entire quarter. The change in this category of cattle from November 1 to April 1 is projected to increase by 462,000 head. This compares to an increase during the same period a year ago of 199,000 head and the previous five-year average gain of 400,000 head, he says.

The bottom line is that stronger beef demand at home and abroad will be crucial if the US cattle and wholesale beef markets are to perform better in the coming quarter than they did in 2023’s fourth quarter.