Unveiling Beef Price Dynamics: Exploring Cold Storage Stocks, Drought Impact, and Cattle Liquidation Trends in 2023

There are a multitude of factors that affect beef prices but in this article are trends Trilateral finds interesting and noteworthy. We will be highlighting the relationship stocks in cold storage has with beef prices, specifically Fresh 50% Ground Beef (Boneless beef).

Boneless beef has been way more expensive in 2023 relative to the 3-year average as you can see in this Fresh 50’s chart below. Fresh 50’s is fresh ground beef with 50% lean meat. As you can see in (chart 1), the price of Fresh 50’s peaked in April and started coming down mid-June.

Yesterday the USDA released their monthly Cold Storage Report which shows food stocks that are being kept in reserve. Boneless beef (ground beef) stocks are lower than last year and much lower than the 3-year average. Fundamentals tell us that less supply= a rise in price. This rise in price has increased the incentive for meat to be pulled out of cold storage to be sold which is why we see a reduction in stocks (as shown below in chart 2). It is worth noting that stocks of boneless beef had their first month over month increase in stocks in July. Due to this inverse correlation of price to stocks, this is exactly what we expected to happen because as prices started to come down stocks were replenished as the incentive to sell diminished.

Other factors that are affecting beef prices are that cattle inventory is much lower the past couple of years due to drought and early liquidation (no grass, corn prices up, good prices all lead to liquidation). ?The world has experienced La Nina weather patterns the past 3 years which provides drought to our cattle producing areas. In 2023 we are in El Nino and that “should” provide more rain, but we will see how it unfolds.

Since La Nina ended, the U.S.'s drought conditions have dramatically improved; as of July, over 46% of the cow herd was located in states with moderate or worse drought conditions. This is up from the most recent low of 30% in May and slightly better than last July's 49%. The most recent drought maps do, however, indicate certain areas of these two most severe categories, even though no states as a whole were designated as being in an Exceptional or Extreme drought during July. The biggest cause of drought in the United States is Texas, which is home to 15% of the country's beef cows. Other states with considerable inventories of beef cows—4% or more each—include Kansas, Nebraska, Montana, and Missouri.? Given that price signals are in place for an increase, but only to the extent that Mother Nature permits, the reappearance of drought will be a crucial element to monitor in relation to the anticipated expansion of the cow herd.

Below are charts on Cattle and Calves Inventory in the United States (chart 3), Cattle Areas in Drought (chart 4), as well as the Percent of United States Cattle Located in Drought Affected Areas (chart 5)