Calves and feeder cattle traded mostly $2-$5 per cwt higher this week as markets built on the previous week’s strength in wholesale beef values and cash fed cattle prices.
“Receipts are currently made up of growing-lot yearlings and fall-born calves, both carrying considerable flesh, but there seems to be plenty of buyers eagerly bidding on all classes,” say analysts with the Agricultural marketing Service (AMS).
Feeder Cattle futures closed an average of $2.49 higher week-to-week ($1.35 to $5.65 higher) through Thursday of the holiday-shortened week.
Warmer temperatures are also adding enthusiasm to beef demand.
Week-to week, Choice boxed beef cutout value was $4.77 per cwt higher, closing Friday at $255.57 per cwt. Select was $2.57 higher week-to-week at $249.28. At 6.28 per cwt, the Choice-Select spread on Friday was the highest since the first part of February.
Though packer margins continue negative, according to various measures, cattle feeders maintain the supply leverage.
Cash fed cattle gained $2-$5 this week, bringing $167-$170 per cwt on a live basis. Dressed sales were $3-$5 higher at $265-$268 per cwt.
Andrew P. Griffith, University of Tennessee agricultural economist, says in his weekly market comments that the end of Lent and the start to baseball season could further bolster beef consumption.
“Packers will continue to manage production through the spring and summer, since retail beef prices will experience little to no relief. Thus, packers will be looking to take advantage of the seasonal increase in available cattle to gain leverage on feedlot operators,” Griffith explains. “It is going to be an uphill climb for packers to force beef cutout prices higher than the records already set. There will be strong pushback from retailers, restaurants, and other food service customers as consumers show some resistance.”
Feedlots are already gushing negative close-outs as calves and feeder cattle purchased at peak prices begin making their way to market.
“Feedlots are experiencing extreme red ink, which could lend to the softening of feeder cattle prices,” say analysts with the Livestock Marketing Information Center (LMIC). LMIC analysts say that estimated cattle feeding losses exceeded $300 per head in February, cash-to-cash (basis the Southern Plains). These were the deepest losses since the summer of 2012 and late in 2008.
On the other end of the business, LMIC analysts note retail margins (difference between wholesale beef cost and an estimated retail price) in February were record high, with the all fresh retail beef price 14% higher than a year earlier.
“Retail prices do tend to be sticky; they don’t adjust very fast compared to live animal and wholesale prices,” LMIC analysts say. “Overall, there is some room for the beef retail margin to erode and still maintain a rather normal situation.”
In between feedlots and retailers, higher fed cattle prices and fairly stagnant wholesale prices continue to squeeze packers.
“Packers will need to see improved margins in the coming months and the improvement could come from retailer margins as retail prices erode,” LMIC analysts say. “Overall, as 2015 progresses, market dynamics suggest that there will be some balancing out in margins across the beef sectors.”
In the meantime, AMS analysts say, “There are market watchers who feel there is still some fuel left in these rockets, with available supplies of feeders eventually tightening and plenty of on-the-farm feed.”
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