Continued erosion of boxed beef values over the last month is squeezing packer margins and pressuring fed cattle prices back into the mid $90 level. Painfully slow economic recovery has left domestic beef demand stagnant, especially for middle and the restaurant sector. Recent restaurant performance indicators have shown that business has remained virtually unchanged in recent months. Fortunately, strong export demand has continued to support wholesale beef values as it has for the past nine or ten months, helped recently by a weaker dollar. Recent improvement in the stock market is positive but is overshadowed by lingering high unemployment and weak macroeconomic psychology.
At the same time, latest USDA crop reports suggest a significantly smaller corn crop due to lower than expected yields. Current projections call for crop year ending stocks of roughly 1 billion bushels, a level that provokes the market to begin rationing corn.
Cattle feedlots, in particular, are caught in a vice in this market environment. Even before this latest corn market news, feedlots were looking at breakevens approaching.