“Expectations of seasonally rising fed cattle supplies have dampened recent cash and futures markets, but traders continue to eye historically high prices for wholesale beef,” explained John Otte, Penton market analyst, this week. “If investors believe consumers will stay willing to pay up for burgers, steaks and other beef products, processors have more incentive to bid aggressively for cattle.”
Though more volatile than a cornered badger, wholesale beef prices have proven hard to keep down for long.
“Wholesale beef prices continue to track much higher than a year ago, even as the cutout index is below its March peak,” say Len Steiner and Steve Meyer in Thursday’s Daily Livestock Report. “More recently, the cutout received some support from higher middle meat prices, which is as it should be for this time of year. Foodservice business is slowly improving as consumers in a number of states emerge from one of the coldest winters in recent history. Retail business also appears to be in relatively good shape, as evidenced by strong prices still being paid for ground beef, chucks and rounds. Some export items (e.g., briskets) are doing quite well and this also has added to the overall cutout gains. Going forward, however, increased feedlot cattle availability is expected to put some pressure on cattle prices.”
Meanwhile, Steve Kay, “Meat Matters” columnist for BEEF magazine, writes in the April issue: “Fed beef processors were able to push wholesale beef prices to record levels in seven weeks of the first quarter of 2014. The weekly comprehensive cutout (which consists of beef cuts, grinds and trim) began the year at $201.20/cwt., and hit $238.21 the last week of March. This and record-high byproduct values allowed packers to pay record prices for their raw material.”
Although beef supplies will likely increase seasonally, the market is starting in a position of strength.
Total red meat supplies in cold storage were 8% less on March 31 than the previous month, and 14% less than the previous year. Total pounds of beef in freezers were 1% less month-to-month, and 21% less than the previous year. Compared to the previous year, frozen pork supplies were 11% less, and total poultry supply in cold storage was 10% less.
“In the short term, the cutout will benefit from the normal rush of retail orders in the two weeks before Memorial Day,” Steiner and Meyer explain. “This is a big meat-consumption weekend for retailers and beef is often the star attraction. Already we are starting to see the price of both lean and fat beef trimmings (ground beef components) start to move higher and they will likely continue to appreciate for the next three weeks. What is less certain for beef is what happens after July 1 as fed supplies approach year-ago levels.
“One supporting factor is that other protein supplies will likely be down. Pork production is guaranteed to decline compared to a year ago, and some forecasts we have seen call for a pork output shortfall of 7-10% during July and August. Chicken supplies are far from burdensome while turkey producers are finding it difficult to find enough product to fill orders on the books. In all, we are coming into the spring and summer with less supply than a year ago while consumer demand is slowly improving thanks to the warmer weather and a stronger economy,” Steiner and Meyer say.
“All wealth comes to the beef industry from consumers,” Kay emphasizes. “How they respond to record-high beef prices in the grocery store this grilling season will set the tone for the live cattle market for the rest of the year. So far this year, consumers have shown a remarkable willingness to keep paying higher prices. In fact, USDA’s March All Beef price averaged $5.36/lb., up from $5.27 in February, and $4.92 in March 2013.”
Kay notes this was before record-high wholesale prices found their way completely to the consumer. He adds that retail beef prices for April are expected to establish another record high.
“The almost $9 discount from April to June Live Cattle futures should catch most of the expected seasonal cash decline into summer,” Otte believes. “The longer the $147-$150 live basis cash cattle hang around, the higher the summer seasonal low should be because feedyards will attempt to pull cattle ahead and sell them before prices slip.”
The opinions of Wes Ishmael do not necessarily reflect those of beefmagazine.com or the Penton Farm Progress Group.
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