Cow Beef Price Drop Multi-Faceted

Wholesale cow beef cutout values have dropped sharply since mid-September as prices for fed beef failed to live up to expectations and feedlot losses reached epic proportions.

Prices for cow beef held very steady this year at around $230 per cwt, but began to fall away in early July.  A graph shows that prices crossed last year’s line in mid-July and have remained in a downtrend ever since.

The graph also shows the steep price decline that began in September.

Cutter cow beef usually is ground since it comes from older animals and likely is less tender.

The cause of the drop in cow beef values appears to be subtle with no single marker other than the decline in fed and feeder cattle prices.  It appears the decline is related to increased domestic supplies of all beef, which, in turn, can be related to lower beef exports and higher production rates.

However, this correlation appears to be less than straightforward since much of the increase in beef production is the fattier fed beef.

US beef exports for the year are estimated at 2.173 billion pounds, most of which is either high-eating-quality cuts or variety meats.  Second-half exports were expected to total 1.410 billion pounds, compared with 1.323 billion last year.

 

COW SLAUGHTER TRACKING LAST YEAR

 

Cow slaughter rates are tracking last year and continue to drift away from the 2009-2013 average.  As of the last week of November, total cow kill was 84,785 head, 23,315, or 23.6%, below last year’s 108,100 head and 31,175, or 26.9%, below the previous five-year average of 115,960 head.

Total cow slaughter has always jumped again in the weeks following the Thanksgiving Day holiday, only to drop precipitously for the Christmas and New Year’s holiday weeks.  There’s little reason to expect something different this year.

But lower slaughter rates should yield price support if all other factors are equal, so if cow slaughter has not made a sudden increase and, in fact, has remained close to 2014 levels, cow beef prices should be going up, not down.

In fact, below-average cow slaughter shows that cow/calf producers continue to build their herds, which should be bearish to deferred futures delivery months.

 

ANNUAL IMPORTS ARE UP

 

If cow slaughter is running at or below a year ago, rising beef imports could be to blame, and USDA data show that estimated 2015 beef imports are up from last year.  The latest USDA estimate for the year was 3.507 billion pounds, up from 2014’s 2.947 billion.

However, the significant cow beef price decline has taken place over the last three months, and estimated fourth-quarter beef imports of 750 million pounds are below fourth-quarter 2014’s rate of 818 million.  The biggest jump in 2015 beef imports came in the first half when 1.867 billion pounds was brought in, compared with last year’s 1.364 billion.

 

CASH FED CATTLE MARKETS QUIET

 

Cash cattle markets traded lightly Tuesday at $115 to mostly $117 per cwt, down about $2 from last week when prices lost $4 to $5 to trade at $118 to $119.  Dressed-basis prices ranged from $183 to $184, down about $4 from last week when they were off $5 to $6 at mostly $187 to $188.

The USDA Tuesday reported its choice beef cutout value at $197.21 per cwt, down $1.57 from Monday.  The USDA’s select cutout was $186.81, up $0.08.  The choice/select spread narrowed to $10.40 from $12.40 on Monday, and there were 123 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Monday was $155.22 per cwt, down $1.28.  This compares with the Jan settlement Tuesday of $148.52, up $0.37.