Live Cattle Prices Working Lower

Live cattle prices are working lower, an event Andrew Griffith, agricultural economist at the University of Tennessee calls “the summer wall.”

Griffith added in a weekly comment that prices are hitting this wall hard as feedlots pull cattle forward at a time when cash cattle prices struggle seasonally.  Fed cattle are coming to market in large numbers, he said.

Cattle feeders are pulling cattle forward because of the deep discounts in upcoming futures delivery months.  This tells them the market does not want their cattle in coming months as much as it wants them now, and that keeping them on feed longer will only result in extended losses whenever they do come to slaughter.

While weekly cattle slaughter rates have grown to 2016 highs, they remain below the 2010-2014 average.  They could remain higher than last year, punctuated only by lower slaughter rates for the week of the Independence Day holiday.

Slaughter actually began to diverge from last year in February and March, and the spread continues to widen.

Last week, estimated federally inspected slaughter was around 608,000 head, up 1,000, or 0.16%, from 607,000 the previous week and up 49,400, or 8.84%, from 558,600 in the same week last year.  However, this was 49,260 below, or 7.49%, from 657,260 a year earlier.

 

PACKERS FEAR SUMMER HEAT

 

Beef packers fear a collapse of the beef cutout price during the summer heat, often called “the dog days of summer,” Griffith said.  This is causing fed cattle prices to deteriorate to near breakeven, erasing a short period of profitability after more than a year of hefty losses.

“Live cattle prices will likely struggle the next couple of months as hot temperatures set in and cattle are pulled forward,” he said. “Replacement cattle may be fairly inexpensive, though.”

Packers currently are able to take advantage of the lower fed cattle prices and boost margins by supporting beef prices.  Retail grocers featured beef for the Father’s Day weekend, and it is evident that demand for choice middle meats remains strong, keeping the choice/select spread wider than normal.

There is little reason to doubt that the beef cutout has begun its summer price decline this week, he said.  There are some grilling holidays to come, but consumers will switch from middle meats to ground beef for them.  Independence Day and the Labor Day holidays are thought of as hamburger and hot dog holidays, not steak.

 

 

CASH CATTLE MARKET LOOKS STEADY

 

Only isolated action has been reported in the cash cattle market this week, with the USDA marking a couple of trades at $116.50 to $117 per cwt

Cash cattle markets last week were $4 to $5 per cwt lower at $116 to $117.  Dressed markets traded at $184 to $185.

The USDA’s choice cutout Wednesday was $0.53 per cwt higher at $208.57, while select was off $0.56 at $195.88.  The choice/select spread widened to $12.69 from $18.73 with 130 loads of fabricated product sold into the spot market.

The USDA says the beef market remains firm on choice and weak on select in moderate demand and offerings.  Trimmings are slightly to moderately higher on moderate demand and offerings.

The CME Feeder Cattle Index for the seven days ended Tuesday was $141.27 per cwt, up $0.60.  This compares with the Aug settlement Wednesday of $143.05, up $2.37.