Live cattle will prove one of the best bets in agricultural commodities in 2023, buoyed by a squeeze on supplies of animals for slaughter after a drought-boosted programme this year, Rabobank said.

The bank forecast Chicago live cattle futures averaging 164 cents a pound in the last three months of 2023 – up from the 151.80 cents a pound at which the spot December 2022 lot closed on Wednesday.

The forecast is also above the futures curve, with the October 2023 lot priced at 137.375 cents a pound, and the December contract at 161.525 cents a pound.

“Tighter supplies and higher input costs will support market prices,” Rabobank said, noting that while the US slaughter rate in the second and third quarters of the year was 2.3% higher than a year before, the supply of fed cattle was poised to go into reverse.

‘Supply is tightening’

While the flow of cattle onto feedlots has been fuelled by drought, which encourages producers to sell animals rather than keep them, especially at times of high feed prices, “supply is tightening as liquidation takes its toll.

“That should lead to a 3% decline in cattle slaughter and beef production in 2023, with additional 2-5% annual declines likely into 2026,” Rabobank said.

“Tighter supplies could underpin the markets going forward,” although the bank acknowledged the threat from economic downturn to demand for beef which, as an expensive meat, is usually vulnerable to tightened household purse-strings.

‘Going to have to pay higher prices’

The comments follow an upgrade last week by the US Department of Agriculture, by $2 per hundredweight to 156.00 per hundredweight (156 cents a pound) to its forecast for average US fed steer prices in 2023, also reflecting expectations of tightened supplies.

“Higher expected fed cattle marketings in late 2022 will likely tighten fed cattle supplies in 2023,” the USDA said.

“With tighter supplies of cattle, packers are likely going to have to pay higher prices for slaughter-ready cattle, even as feedlot operations are likely to limit feeding cattle for an extended period given the increase in operating costs from a year ago.”

Weakened fed cattle supplies prompted the USDA to cut to 90m pounds to 26.28bn pounds its forecast for US beef production next year, “which is more than 7% below the 2022 projection”.

Pork demand ‘stressed’

By contrast, Rabobank forecast Chicago lean hog prices peaking at 100 cents a pound in the April-to-June period of next year, before easing back to 81 cents a pound in the October-to-December period – levels a little below those investors are pricing in.

Weaker demand will “weigh” on the market, the bank said, foreseeing that “consumer appetite for pork in 2023 could be stressed as economic conditions wane”.

Meanwhile pork production will show, small, growth of 0.2% year on year, supported by productivity gains, notably in the second half of the year “as health improves”.

The USDA forecasts 0.1% growth in US pork output next year, to 27.35bn pounds, while forecasting an average 2023 price of barrows and gilts of 66.75 cents a pound, down by 6.4% year on year.

For more on Rabobank’s ag price outlook for 2023, click here.

For grain and oilseed price forecasts, click here.

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