CME: Consumer Preference Still There for Beef02 April 2013
US - Cattle futures were notably higher in Wednesday's trading although trade overnight was mixed.
The nearby live cattle futures contract (April) closed on Wednesday at $127.35/cwt, 140 points higher than the previous close while June added 182 points to close at $122.95 and August added 140 points to close at $124.025/cwt.
Feeder cattle futures also were higher, with April feeders up 180 points and May up 160 points. The surge in cattle prices follows cash prices that traded firm, with higher asking prices for cattle coming to market in the next couple of weeks.
Packers have been running fairly light schedules for much of this past month but the expectation is that with weather warming up and Lent behind us, slaughter should start to improve in April.
Steer and heifer slaughter is currently running at a weekly pace of about 449,000 head per week (seven day total through Wed.), down 6.2 per cent compared to year ago levels. Cow and bull slaughter,
on the other hand, is currently running almost 13 per cent higher than a year ago.
The surge in cattle prices at a time when boxed beef values have been drifting lower will likely squeeze packer margins in the very short term.
So far boxed beef values have followed a similar pattern as they did last year (see chart). The cutout approached a top of almost $200/cwt but it has now pulled back in the $190 area.
The fact that Easter is earlier this year should help the cutout rally earlier than it did a year ago. Retailers are looking for post Easter features and some beef items are now priced notably lower than they were earlier this year (remember April LC was $137/cwt at the beginning of the year).
Cold weather across much of the US East Coast and parts of the Midwest so far has negatively impacted sales compared to last year when weather in heavily populated areas was warmer. As weather improves, there should be some pent up demand that could underpin beef cut sales in April and May.
The feedlot inventory also showed that total supplies of cattle on feed remain limited (down almost 7 per cent vs. year ago).
Retailers have been able to diversify to other protein so far (whole bird chicken is at all time record highs) and turkey burgers are showing up at in fast food restaurants. But the consumer preference for beef has not disappeared and going into the grilling season, beef prices should see somewhat better demand than they have seen so far.
Challenges remain on the demand front, from slow growth in disposable incomes (some say negative growth), relative high rates of real unemployment and underemployment to a growing gap in incomes. Export demand also remains finicky.
Russia has stopped buying any US beef but sales to Japan appear to have improved. Normally, beef exports also tend to improve into the summer months.
As noted above, cow slaughter rates continue to run well above year ago levels. The increase continues to be driven, at least so far, by more dairy cows coming to market than a year ago.
Milk prices have improved but feed costs will remain a concern for the dairy industry at least until we have a better idea of how this year’s harvest will shape up.
Some beef cow producers also continue to struggle with limited feed supplies and the sharp decline in feeder cattle values clearly has undermined the profitability of some herds.
Drought conditions persist in a number of areas and the Panhandle bears watching as it is coming into the spring with a significant moisture deficit. Bottom line: Tight beef supplies and improving spring demand should help support cattle and beef prices. Weather, as always, remains a wild card.
TheCattleSite News Desk