The cattle and beef industry encompasses various sectors, from primary production to packing and beef product markets. Price adjustments occur throughout these sectors, although the magnitude and timing can vary. In the current landscape, tightening cattle supplies suggest that margins above the cow-calf sector will face pressure in the coming months, albeit to different extents across industry segments.

Retail beef prices have remained relatively unchanged over the past 16 months, with the latest monthly retail all fresh beef price experiencing a slight 0.7% year-over-year decline. However, Choice boxed beef prices have surged over 14% compared to a year ago. This indicates that retail margins are shrinking due to wholesale values increasing at a faster pace than retail prices. It is important to note that reported retail beef prices reflect only grocery sales, and adjustments in food service and export markets are less understood. The ability of retail beef prices to rise amidst limited supplies and increasing wholesale prices is a significant concern in the current beef market.

Packer margins are already being squeezed, and further pressure is anticipated. Fed cattle prices have risen 25% year over year, surpassing the 14% increase in boxed beef prices. Additionally, packers will face higher overhead costs as dwindling cattle numbers reduce packing plant utilization rates in the coming months.

Feedlots are currently experiencing favorable profits due to the time lags in feedlot production and the rapid increase in fed prices to record levels this year. However, it is only a matter of time before feedlot margins feel the impact of rising cattle prices. Prices for feeder cattle placed in feedlots have risen approximately 39% year over year. By the end of the year, feedlot breakevens for fed cattle will significantly increase.

Calf prices have surged around 50% year over year, outpacing feeder cattle prices and eroding stocker margins or value of gain. Yet, similar to feedlots, the time lags in stocker production will help offset part of the high calf purchase prices with the uptrend in feeder sales prices. Feeder futures contracts for the deferred months already reflect a notable uptrend in prices, offering the potential for positive returns in stocker or backgrounding programs. Calf prices are expected to continue rising faster than feeder cattle prices in the coming months.

Calf prices play a crucial role in incentivizing herd expansion in the near future. Cow-calf producers will witness a significant increase in revenues as calf prices continue to rise. As the primary source of supply for the industry, cow-calf producers do not face buy-sell margins like other sectors. However, input costs such as fertilizer, chemicals, and fuel have posed challenges for the cow-calf sector, with drought impacts and record-high hay prices particularly affecting some producers. The surge in calf prices encouraging herd rebuilding will be accompanied by markedly higher breeding cow and replacement heifer prices in the coming months. Undoubtedly, cattle and beef markets will exhibit considerable dynamics and volatility across all levels for the foreseeable future.