Cattle Prices A Function Of Packer Margins

Cattle prices currently are a function of packer margins, which the Livestock Marketing Information Center calculates to be some of the widest in some time.

Last year at this time, packers were losing money, which is typical for the season, said LMIC director and senior agricultural economist Jim Robb.  This year, they appear to be on track to have one of their best years.

Robb stressed that the numbers were estimates of gross packer margins based on what is known and assumed about plant costs for processing.  Actual margins may be quite different, but the trend will be the same.

The LMIC calculates gross packer margins in dollars per 1,000 pounds, so comparisons with many market analysts’ numbers who figure them on a per-head basis are not readily apparent.

However, an LIMIC graph of monthly live to cutout beef price spreads in dollars per 1,000 pounds shows the relative strength of gross packer margins compared with last year and the 2010-2014 average.

The data shows that for January, February and March, the gross price spreads were much wider than a year ago or the previous five-year average.  In January, the spread was $205.98 per 1,000 pounds, 66.9% above the five-year average of $123.40 and 57.9% above last year’s $130.43.

By March, the gross live-to-cutout spread had narrowed somewhat, but still was $175.59, 35.6% above the $129.53 average and 91.7% above last year’s 91.61.

April data is not yet complete, but weekly averages so far indicate the number could be near 57% above the average and 29% above April 2015.  Weekly numbers so far also suggest a gain in packer margins for April, which would be counter-seasonal, Robb said.

 

PROVIDING CATTLE PRICE SUPPORT

 

The wide packer margin is helping to support fed cattle prices, even though it may not seem like it, Robb said.

Traders have been focused on production and inventories of competing meats as well as export and domestic demand, which have been noticeably lower this year.

Prices are following the trend of last year, although at a much lower level, but inventories of competing meats, slow export markets and tepid domestic meat demand have had less to do with pricing than have packer margins, he said.

 

CASH CATTLE MARKET QUIET

 

Cash cattle markets Monday were quiet with no bids or offers reported.  Feedlot showlists were estimated to be smaller than last week, which could add some seller price leverage.

Cash markets last week traded lower at $127 per cwt on a live basis, down $7 to $8.  In dressed markets cattle traded at $200 to $201.50, down $14 to $15.

The USDA’s choice cutout price Monday was down $0.10 per cwt at $220.21, while select was off $0.46 at $210.23.  The choice/select spread widened to $9.98 from $9.62 as 93 loads of fabricated product were sold into the spot market.

The USDA said select and choice ribs, chucks and loins were steady to firm, while rounds were weak to lower.  Trimmings were mixed.

The CME Feeder Cattle Index for the seven days ended Friday was $147.89 per cwt, down $3.22.  This compares with the Apr CME settlement Monday of $146.02, down $1.92.