Cull-cow prices typically rise 10-15% from the lows in November into March and then maintain those higher price levels through the spring and early summer. But the price rally this year has been much stronger, says Dillon Feuz, Utah State University economics professor.
In his “In The Cattle Markets” column this week, Feuz says canner/cutter-grade, cull-cow prices were under $40/cwt. in November 2009. By January, they’d increased to near $45 and were over $50/cwt. at the end of February. Meanwhile, boner/breaker-grade cow prices have risen similarly.
While supply and demand factors, of course, are responsible for the rally, Feuz provides a closer look.
Many producers think all beef from cull cows ends up as fast-food ground beef. While that’s true for 60% of the supply, the other 40% is marketed as thinly sliced roast beef, pre-cooked products, and even steaks and roasts that are sold at lower-end restaurants, buffets and cafeterias, he says.
With the downturn in the economy, a diner who most prefers to eat a high-quality (and presumably more expensive) steak has two choices – eat lower-priced pork or poultry, or cheaper beef in the form of a hamburger or a lower-quality steak.
When economists measure beef demand, which is based on both the quantity consumed and the price paid, Feuz says, they may find that total quantity consumed hasn't changed but that prices have declined. That is, more beef is purchased at a lower price and less beef is purchased at a higher price. From that, one will conclude that demand for beef has declined. But the reality may be that demand for high-quality, high-priced steaks has declined, while the demand for lower-quality, lower-priced beef cuts may have actually increased.
In fact, prices for Choice boxed beef have increased 6% from November 2009 until February 2010. Prices for Select boxed beef increased by 11% over that same time period. Furthermore, prices for beef trimmings increased 24% from November to February.
Cull cows supply lean beef for the beef-trimmings market. Therefore, while beef demand may be claimed to have fallen in 2009 and may struggle in 2010, it appears demand for lower-quality beef, and therefore cull cows, may be increasing, Feuz says.
-- Dillon M. Feuz, Livestock Marketing Information Center