The USDA’s Cattle-On-Feed and semi-annual Cattle Inventory reports underscore the tight supply situation in the cattle industry, a scenario that may not be resolved for at least another year, according to the top executive of Tyson Foods.
Tyson’s Chief Executive Donnie Smith told investors Monday as its quarterly earnings were rolled out that a drop of 4% to 5% in fed cattle supplies could be expected in its next financial year, which starts in October. That comes on the heels of a forecast 3% to 4% decline in the current year.
Smith’s implied warning to investors was that the squeeze in fed cattle supplies and their implied higher prices could impair company earnings.
It’s also bad news for consumers who almost certainly will see elevated beef prices for at least another year or two as tight cattle, and thus beef, supplies continue to push prices to record highs.
HOW HIGH IS HIGH?
Fed cattle prices in the Southern Plains last week surged $8 per cwt, or 5.24%, to a new record high of $163.77. That was 37.57% higher than the $119.04 in same week last year and 67.04% higher than the previous five-year average of $98.04. The last time fed cattle prices jumped this much in one week was in 2003 after Bovine Spongiform Encephalopathy, or Mad Cow disease, was discovered in Canada and the US closed the border to Canadian cattle.
Smith’s implication that beef prices could continue to rise over the next year or two would take the market further into uncharted territory and test the mettle of consumer demand. Last week, the USDA’s choice cutout value stretched to $253.77, up 1.45% from a week earlier but up 35.42% from $187.40 a year earlier and up 56.12% from the previous five-year average.
What is not known is how much the consumer will stand and still buy all the beef the US can produce. Most traders expect a strong bush-back at some point, and the most obvious place to look would be the more expensive cuts.
Choice beef is almost always is higher than select, and the wholesale spread between them has narrowed to get below last year’s seasonal low. Last year, that was the turning point for a late-summer, early fall widening.
Weekly wholesale beef ribeye prices have dropped precipitously from their latest peak of $845.13 per cwt during the first week of July to last week’s $694.11, a 17.87% drop in just three weeks. While it could be said that prices are simply following seasonal norms, it is clear that consumers have backed away.
By contrast, prices for 50% lean boneless beef (mostly trimmings from fed cattle carcasses) have risen sharply since the Independence Day holiday to $145.63 per cwt from $121.53, a rise of 19.83%. The record high for 50% lean beef this year came the second week of March at $159.08.
And the National Chicken Council reports increased consumption of chicken, which many ascribe to the rising cost of beef and pork.
FEEDLOTS SQUEEZED
While last week’s higher prices for fed cattle helped the bottom lines of feedlots, tight supplies of replacement cattle likely will continue to plague their bottom lines. The USDA weekly average for Southern Plains 700- to 800-pound feeder steers last week was a record-high $222.38 per cwt, up 3.11% from $215.68 the week before and up 48.69% from $149.56 a year earlier and up 83.51% from the five-year average.
If feeder cattle get as tight as the USDA implies, they may price themselves out of a market.