Choice Beef Cutout Following Seasonal, But For How Long?

While choice boxed beef cutout values from the USDA are below a year ago, they remain well above the 2010-2014 average, but whether prices follow the seasonal trend or last year remains to be seen, and the results could be significant for the cattle feeder.

If seasonal tendencies hold, the value will test the first-week-in-January annual low sometime in February or early March and work higher from there.

A graph  shows that the five-year average price tends to struggle at this time of year but also tends to jump sharply through March

That jump can be related to retail grocers gearing up for the start of the annual grilling season.  It also can be related to a lower percentage of choice-grading carcasses among the total cattle slaughter because of cold weather taking a toll on fat accumulation in the feedlot.

If prices follow the seasonal trend, the March price gains will hold in a narrow band through the rest of the year.

However, if choice beef prices follow last year, the spring rally will wilt in the summer heat with only minor rallies into the end of the year.  Last year’s choice beef cutout decline also was based more on increased production than on demand as the cattle price structure had feeders feeding cattle to gargantuan sizes, which produces more choice beef.

Cattle eventually grew so large that one major packing company had to draw the line and reject cattle that were too large to handle.

 

BREED, WEIGHT AND CARCASS GRADE

 

Daniel Drake, farm advisor for the University of California Cooperative Extension, wrote that the percentage of choice carcasses from a given set of cattle slaughtered can be increased by feeding them longer and boosting the amount of overall fat.  Choice grading is determined by the amount of fat deposited within the muscle and not on the outside, but increasing back fat helps to increase the inter-muscular fat called marbling.

However, “with an increase in the number of days on feed come increases in carcass size and external fat cover (which is trimmed away at the packing plant).  In addition, the animals’ feedlot performance suffers.”

As carcass weights reach desirable levels feeders usually will market them to avoid the discounts that come with carcasses being too large.  But last year, demand for choice beef grew to a point where packers increased the benchmark carcass size for discounts.

It’s too early to tell how prices will go this year, but rising cattle numbers imply price pressure.

 

CASH CATTLE QUIET

 

Cash cattle markets Monday were quiet with with no packer bids and asking prices ranging from $137 to $138 per cwt on a live basis and around $215 on a dressed basis.

Cattle trade last week was mostly $133 to $134 per cwt live and $209 to $212 dressed.

The USDA reported lower wholesale beef prices Monday, with choice down $1.04 per cwt at $223.79, and select off $1.74 at $218.94.  The choice/select spread was $4.85, and there were 86 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Friday was $157.54 per cwt, up $0.04. This compares with the Jan settlement Monday of $160.22, up $0.80.