There are a variety of factors that lead to seasonality in livestock and meat markets. Nature dictates many of the production and supply patterns in the livestock industry, from weather and seasons impacting decision making to the biological requirements of bringing an animal to market. Consumer demand also exhibits seasonal patterns that influence the value of beef and pork in the marketplace. Some seasonal patterns have shifted in recent years with evolving export markets. However, extreme events can “break” or at the very least alter these seasonal impacts as we have seen over the past few years with supply chain disruptions due to COVID-19.
This cycle refers to the changes in the overall inventory of cattle and is largely driven by the biological lag between breeding decisions made by producers and when those animals come to market. As an example: high prices may encourage producers to retain more heifers in an attempt to breed more and produce more cattle. In the short term this would mean sending less to slaughter and further pressure prices upwards (if other producers are doing this in unison). If all producers act accordingly, we will see an increase in cattle available to slaughter once these heifers are bred, calved, and those calves are grown to market weight. This is the expansion phase of the cycle. As a result of this increase in the supply of animals, animal prices would be pressured downward, sending a price signal to producers to not hold back as many animals for breeding and even cull more animals. This would further lead to an oversupply of market ready animals and further pressure prices. This decline in the number of animals is the contraction phase. While the number of years of the cycle (defined as peak to peak or trough to trough) varies from cycle to cycle, a typical cattle cycle can last around 9 years or so.
Hog and cattle prices show regular trends where seasonal low prices are established during the months when animals are typically brought to market. In the U.S., seasonal weather tends to influence when cattle are calved (in the spring) and when they are weaned (in the fall), which ultimately will lead to animals being brought to market at similar times. Additionally, with crops being harvested in the fall, it ensures a ready feed source in much of the country where those animals are weaned. Producers in certain areas of the country can also delay sending their animals to feed by holding them and putting them on additional forage as stockers. In the cattle markets, seasonal price patterns can differ depending on cattle class, as well as geographical differences.
Some points during the year may inherently see more price volatility and so will likely experience a larger standard deviation around the seasonal price index for these months. Cattle price seasonality is typically more evident in lighter weight animals such as calves as well as cull cows, while less visible in heavier animals. This is all partly driven by supply (previously discussed that the majority of calving happens in spring and are weaned in the fall) as well as demand, stockers are more sought after in the spring as forage production increases. Cows experience a strong decline in the fall, a result of the typical production cycle. Again, more cows calve in the spring and wean in the fall, and after weaning a producer will cull those cows they are not able to breed again, leading to an influx of cull cows being sold. Cull cow prices are the most likely to be broken from their seasonal pattern by outside impacts such as drought or when the cattle cycle enters its contraction or expansion phase. Fed cattle prices may exhibit weaker seasonality than lighter animals, but they still follow a trend, higher in spring and declining in fall. Another disruption to normal seasonal trends can be prices of other commodities such as corn. In years when corn is high, feedlots face an incentive to secure heavier calves (buying weight) instead of lighter calves and facing expensive costs of gain (feeding the weight on). The inverse is true of cheap corn, lighter weight calves are more valuable relative to heavier calves due to cost effective feeding.
There was a point in time where many in the industry postulated that the onset of climate controlled hog barns would do away with seasonal variation in hog slaughter and pork production. However, this did not come to fruition and seasonal variation continues in the hog industry. It is difficult to fool mother nature, barns still get warmer in the summer, daylight can still be seen through translucent materials, and biological rhythms do not just disappear. Warm barns still impact production. Higher summer temperatures lead to a reduced feed intake, which impacts growth rates. Quality and age of feed ingredients can impact feed intake as well, meaning new crop corn in the fall can help increase feed intake. The result of all of the above leads to seasonal variation of higher prices in the summer and lower prices in the fall.
Consumer Demand follows a seasonal pattern throughout the year. Retail meat sales improve during the late spring and early summer with the start of the grilling season, but then struggle in late summer as temperatures rise and get to be too hot. There is also typically a spike in demand surrounding specific U.S. holidays: Memorial day, the Fourth of July, and Labor Day. Retailers know to expect this and so secure supply of popular products ahead of time. Fast food sales suffer somewhat over the winter and improve in early spring and summer.
For the pork cutout, prices in June and July tend to be as much as 10% higher than the typical annual average. This coincides with the U.S. summer grilling season, which impacts the market with higher prices. The pork cutout follows a similar seasonal pattern as hog prices, but not to the full extent (the pork cutout may drop an average 4% below the annual average while the lean hog index may drop over 10%). In the month of December, the pork cutout does not drop to the same level as hog prices due to strong holiday pork demand. Talking about the seasonality of the pork cutout can get complicated as the way the index is constructed is through a net aggregation of the various muscle cuts of the carcass. Not all of the cuts follow the exact same seasonality, but there can be a general trend of seasonality for the overall cutout.
Like the pork cutout, the beef cutout is constructed from the various muscle cuts that are sold and is ultimately a calculation. However, like the pork cutout, the boxed beef cutout does exhibit a typical seasonal trend throughout the year. The boxed beef cutout tends to peak in May (at 6%-7% above the annual average), again coinciding with the summer grilling season in the retail channels as well as increased demand in QSR channels. This declines to a seasonal low in October (nearly 6% below the annual average) before seeing an increase at the end of the year that is primarily holiday driven.
The major primals all exhibit their own seasonal patterns that are the net effect of the various subprimal cuts that comprise the primal. The middle meats (the rib and loin primals) tend to exhibit different seasonal patterns than the end meats (chuck and round primals). For instance, the rib primal, which is typically the highest value primal and made up primarily of the ribeye cut, peaks in both May and November on the typical summer and holiday demand, with its seasonal low occurring in the post-holiday decline in January. The loin primal has more options for fabricating it down into various subprimal cuts and each can have their own seasonal price range. The loin primal peaks in early summer before declining to a low in October. End primals generally will exhibit different seasonal patterns than the middle meats with less seasonal variation overall, instead following more of a seasonal decline throughout the year.
There are a variety of factors that can affect the value of both livestock as well as beef and pork markets. These factors range from cyclical impacts in the form of overall herd expansion and contractions, as well as seasonal impacts as various products follow relatively regular patterns throughout the year. Driving these seasonal factors are the weather and seasons, biological processes of animals, consumer demand, and the time lag between producer decisions and end products coming to market.
