Beef Packer Margins Weaken

Things are getting tougher for beef packers as beef markets weaken and fed cattle prices and futures hold tough or even increase.

Wholesale boxed-beef values are declining, following last year’s general trend and running below the 2011-2015 average.  It’s likely that booking for early spring retail features will take wholesale beef prices higher sometime within the next couple of weeks, and other short rallies can be expected as certain holidays approach, but the annual trend looks lower.

Last week, the average choice cutout value was $189.39 per cwt, down $3.48, or 1.81%, from $192.88 the week before.  It also was down $28.23, or 13.0%, from $216.63 the same week a year ago and down $9.31, or 4.69%, from the previous five-year average of $198.70.

 

A PACKER’S DILEMMA?

 

That leaves beef packers with a dilemma.  Margins are being cut as beef prices decline and slaughter steer prices hold within a narrow range.  The USDA/AMS’ weekly five-market average fed steer price this year has held within a $4.21-per-cwt range as beef prices dwindled.

However, packers may not be terribly concerned, since this same dichotomy of prices seems to happen most years.  In fact, this year isn’t as bad for packers as it has been for the last several.

The data show that average five-market slaughter steer prices held within a $1.07 range over the same six-week period, and that last year the range was $4.81.

The kicker comes when this year’s fed steer prices are compared with last year and the 2011-2015 average.  This year’s fed steer prices are significantly lower.

Last week, for instance, the average 5-market fed steer price of $119.75 per cwt was $11.80, or 8.97%, below the $131.55 of the same week last year.  It also was $11.53, or 8.78%, below the previous five-year average of $131.28.

The Sterling Beef Profit Tracker, a weekly spreadsheet from Sterling Marketing Inc, in Vail, Ore., has a calculated beef packer margin after last week’s cash trade at $5.62 a head, down $12.63, or 69.2%, from $18.25 the previous week.  Last week’s margin also was down $35.32, or 86.3%, from $40.94 a month earlier and down $24.77, or 81.5%, from $30.39 a year earlier.

The reason packer margins are sinking is increased production, market analysts agree.  Beef production rose about 8% in the fourth quarter of last year, compared with a year earlier.  Beef production was expected to continue rising through this year as slaughter increases.

Beef exports have improved, but there is growing worry that President Trump’s moves in trade negotiations will cut this substantially as early as this year.  Even if beef exports continue unabated, trade sources point out that gains in exports have not kept pace with production increases.

 

CASH CATTLE TRADE QUIET

 

Average fed cattle exchange auction prices last Wednesday were $3.13 per cwt lower at $118.84, versus $121.97 a week earlier.

Cash cattle then traded at $119 to $120.50, mostly $119.75 to $120.50, on a live basis, up $0.50 to $0.75.  Dressed-basis trading was at $190 to $190.50, steady to up $0.50 from $190.

The USDA’s choice cutout Tuesday was up $0.10 per cwt at $188.36, while select was up $0.67 at $187.25.  The choice/select spread widened to $1.11 from $1.68 with 96 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Monday was $128.46 per cwt, up $0.05.  This compares with Tuesday’s Mar settlement of $124.00, up $2.17.