Despite record-high calf prices, lower input costs potentially open the door for profitable winter grazing, a University extension agricultural economist says.
John Riley, at Mississippi State University said in a study that if the cost of gain were 70 cents a pound, and if (Alabama) No. 1, 412-pound calf prices stay at $2.84 a pound, a price as low as $1.88 a pound for the 750-pound steer would keep producers in the black.
However, one of the things producers cannot rely on is consumer demand for beef. Already, wholesale demand for various beef products over the last eight years shows a shift toward traditionally less-expensive cuts. Primal values for these lower-priced alternatives to loins and ribs are gaining on the more expensive cuts.
Whether consumers will shift en masse to alternative meats like pork and poultry remains to be seen, but they have shown a tendency to shift some meals to these less-expensive meat products in the past, suggesting a larger shift is possible.
Even if consumers don’t move consumption to pork or poultry on a large scale, grocers have shown they are not above threatening to shift their weekly feature advertising campaigns as a way to negotiate lower beef prices from the packers.
Traders also should not lose sight of the fact that consumers likely have not seen the full extent of wholesale beef price gains over the last year as the tight cattle supply finally made its presence known.
WORLD EVENTS A WILDCARD FOR BEEF MARKETS
As “wars and rumors of war” surround the daily news, the status of the world’s economic condition becomes increasingly worrisome, especially as it relates to other countries’ ability and willingness to pay for beef. The rise of ISIL in Iraq and Syria makes it clear that any war on terror will be a long, drawn-out affair in the best of scenarios.
In fact, it’s likely to be never-ending. Such religious fervor doesn’t go away.
But fighting such fanatic terror is expensive, even if it is necessary, taxing the ability of economies to pay for the effort. Consumers around the world will have less spendable income, and meat, beef in particular, may become more of a luxury item.
And retaliatory embargoes aren’t out of the question either.
NBC News reported Russia’s consumer watchdog said Thursday it had stopped imports of more than 550 tonnes of U.S. chicken legs as part of efforts to prevent “counterfeit and prohibited” food entering the market. Rospotrebnadzor also said in a statement it had stopped more than 77 tonnes of pig products from Poland and Germany as well as 110 tonnes of apples because they were labeled improperly.
These bans may be veiled extensions of a policy announced in August by Russian President Vladimir Putin to ban or limit food imports from countries that imposed sanctions on Moscow for its support of pro-Russian separatists in Ukraine.
BEEF PRICES RISE IN ACTIVE TRADE
Boxed-beef prices were up Wednesday amid firm-to-good demand and moderate-to-heavy offerings. The USDA’s cutout value, at $238.14 per cwt, was up up $0.11, and its select cutout, at $227.18, was up $0.73. A week earlier, choice was reported at $239.13 and Select was $226.31.
The choice/select spread narrowed to $10.97 from $11.58 on Tuesday. There were 185 loads of fabricated product sold into the spot market after 181 loads on Tuesday.
The CME Feeder Cattle Index for the seven days ended Tuesday was a record $233.86, up $0.20 from Monday. By comparison, the Oct futures contract settled Wednesday at $238.42, up the daily limit of $3.00.
IN OUR OPINION
–The European Union’s new health boss has pledged to oppose imports of U.S. poultry treated with chlorine, according to a report by Reuters from his confirmation hearing. He also reportedly turned up his nose to genetically modified crops. So apparently germy chickens are better than chlorinated ones, and crops that kill their own pests are better than sprayed crops.
–China’s Golden Week is keeping world market activity subdued.
–Traders are worried about a storm system moving across the Midwest over the next 48 hours. Heavy rain will delay harvest and slow crop drying.
–Corn demand from ethanol producers likely will continue to fall with dropping oil prices. Ethanol producer margins are being challenged.