Packer Discounts For Over Fat Cattle Increase

Beef packer discounts for overly fat cattle, labeled Yield Grade 4 or 5, are increasing, making it less palatable for cattle owners to feed them to gargantuan proportions.

Beef packers report the premiums and discounts for their grid-pricing programs to the USDA’s Animal Marketing Service where they are compiled into a weekly summary of the data.  The industry considers the reports somewhat useful in that they show averages but do not reflect any specific program or packing company.  However, they do show trends over time, and the trend is toward larger discounts for fat.

When cattle are fed high-energy, feedlot diets past their most efficient growth and fattening point, their feed efficiency goes down, meaning it takes more feed to pack on extra pounds.  What’s worse, the bulk of the extra fat is deposited on the outside of the carcass rather than in the muscles themselves where it would be considered beneficial to the tenderness and flavor of the meat.

Some growth in bone and muscle takes place, too, and this is what the packers were seeking when they lowered their discounts for YG4 and YG5 carcasses in late June of last year.  They were willing to trim the fat off the carcasses because they needed the underlying meat at the low point of the US herd size.  Demand for the beef from those trimmings also was strong.

 

THINGS HAVE CHANGED

 

Since early September, however, the USDA’s AMS began to report that discounts for YG4 and YG5 carcasses were increasing.  The discounts for YG4 carcasses from the benchmark YG3 was $9.27 per cwt, compared with $8.27 in early August.  The discount for YG5s was last at $14.74, compared with $13.12 in early August.

That means one or more of three things are taking place:  1) there is an increased supply of slaughter-ready cattle available to packers, 2) there are large relative supplies of YG4 and YG5 cattle, most of which have been made to be this way by extra long feeding times, 3) prices for trimmings made up of 50% lean meat are going down.

Those 50% trimmings are the part that is removed from the carcass during the process of making marketable beef cuts.

As the discounts for YG4 and YG5 beef carcasses rise, the incentive to feed cattle longer to gain the extra weight, and statistics point in this direction.

Data compiled by Kansas State University show that the number of days cattle have spent on feed is declining, following a seasonal path.  This would suggest that cattle owners are responding to higher discounts for fat.

However, other data show that cattle this year are entering the feedlots at larger sizes.  Calves entering the feedlots have a natural tendency to be larger from late spring through late fall, and abundant pastures are allowing producers to grow them larger on cheaper grass.  Cattle feeders also are drawn to them because they can grow them into behemoths while minimizing the percentage of YG4s and YG5s in the mix.

Finished weights of steers being sent to slaughter have been rising since bottoming in March, but by July had surpassed last year’s record high.  Further gains may be made more unpalatable with larger discounts for overly fat cattle.

 

CASH FED CATTLE TRADE LOWER

 

No fed cattle trading was reported in the Central and Southern Plains Monday.  Feedlot showlists are smaller in most areas, giving cattle owners more price leverage in this week’s negotiations.  No bids or offers were reported.

Last week’s cash cattle markets traded lower – from $139 to $142 per cwt on a live basis, about $1 below the previous week.  On a dressed basis, cattle traded from $217 to $220 per cwt, compared with $220 to $223.

The USDA reported lower boxed beef prices again on Monday with its choice cutout down $0.95 per cwt at $235.14 and select off $1.04 at $225.69 with 112 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Friday was $205.53 per cwt, up $0.15.  This compares with the Sep settlement Monday of $200.15, down $0.55.