The Memorial Day holiday is past, and the effect of the holiday on beef markets is complete. In fact, the summer doldrums appear to be here, said Stephen Koontz, agricultural economist at Colorado State University, in the latest missive to Extension Service personnel from the Livestock Marketing Information Center.
The holiday’s effect on prices was supportive, especially the choice/select wholesale price spread, but the fundamentals going forward look to be a mixed bag, Koontz said.
While there is information that will be construed bullishly and bearishly, there likely will be a lot of beef and other protein production through the summer, he said. This is, and will, weigh on cattle markets.
THE BULLISH NEWS
The packer margin is strong, estimated at a positive $372.23 a head by the Sterling Profit Tracker for cattle purchased from feedlots last week. Net exports of beef also are strong, and Saturday and total slaughter volumes have been high to keep up.
In addition, slaughter weights continue their seasonal decline, and composite beef values have been relatively high, Koontz said.
The strong choice/select spread indicates excellent beef demand going into summer, he said. And the total effect shows that beef movement and beef demand are high in the face of high production.
THE BEARISH NEWS
However, the bearish news is equally present, Koontz said. Seasonal declines in slaughter weights can be expected to decline and reverse soon.
Byproduct values are very weak, and the volume of market-ready cattle is very high no matter how the measure is constructed. To make matters worse, retail beef prices are high enough to limit movement, even if they haven’t already.
This market easily could enter the normal summer doldrums, with heavy production and soft prices, Koontz said. There are certain key factors to watch.
Strong packer margins incentivize the packer to buy aggressively and continue to move large volumes of beef. The market needs to see continued heavy marketings and slaughter to pull down the number of market-ready cattle.
Aggressive marketings also will limit the seasonal growth in slaughter weights, he said. And it would not hurt to see continued strong exports and some softening of retail beef prices.
The market has very limited upside potential based on fundamental supply and demand, Koontz said. A lot has to happen to see a market similar to that of 2017.
Almost everything lined up so that 2017 had very good marketing opportunities, he said. A lot would have to happen to see a market similar to 2017, and last year will not play out this year.