Short Packers Pay Up For Cattle

Slaughter steer prices in the Southern Plains traded $2 to $4 per cwt higher this week, extending the $4 rally of the previous week and going against the average trend as short-bought packers stepped up.

Central and Southern Plains fed cattle Tuesday sold at $170 per cwt on a live basis and at $268 to $271 on a dressed basis in Nebraska.  Gains in the first week of the year are atypical for cattle as feeders offer more cattle to the packers since they can no longer divert income into the new year.

Wholesale beef prices usually rise slightly in January but often give up these gains in February when they set the annual low, although last year was different.

Average weekly choice beef carcass cutout prices from the USDA last January shot up $37.60 per cwt the first week of February to $238.43 from $200.83 the first week of January.  Beef prices then fell away to a weekly average of $208.83 the first week of March.

That two-month price gyration followed the seasonal average, although with much greater volatility.  And recent strength in the boxed-beef cutout suggests the market may be ready to carve out a similar trend now.




Southern steer prices appear ready to follow last year’s January rally rather than the average softening and last year’s dip.  Steep price gains the last three weeks could point the market higher in the first few weeks of the new year.

However, the cash market is again touching $170 live, an area that saw price resistance in late November.  Last year’s peak in the average Southern Plains slaughter steer price – $172.94 – came in the last week of November.

In 2013, fed cattle prices fell away in January, bounced around through the rest of the winter, only to bottom in July.  Still, compared with 2014, prices traded in a very narrow range, setting the annual high the last week of December at $132.72 per cwt.

Whenever prices of a product diverge to record highs mostly on supply shortages, price volatility is the result.  Until supplies return to normal or consumers become adjusted to the new price levels, traders have a hard time being comfortable at the new highs.

Last year’s cattle prices were no exception.  Line graphs of weekly Southern Plains slaughter steer prices from the Livestock Marketing Information Center show this volatility clearly.

As a result, day-to-day and week-to-week trading in live cattle could be just as volatile as last year, especially since cattle producers appear to be rebuilding cow populations after years of decline.  Short supplies will be the norm for most of the year.




Beef market volatility could be exacerbated this year by increasing competition from pork and chicken.  Both are on course to boost production, which will inject more meat into the marketplace.  To get this meat sold, the market will have to lower prices.  And since consumers can only eat so much meat, a certain amount of elbowing for meat case space and consumer interest can be expected.

Beef may be replaced by pork or chicken once or twice a month, amounting to a large change in consumption over the course of the year.

Adding to the volatility are the implications of the current wholesale beef market, which show a continued strong desire for beef, even though retail prices are near record high.  This means consumers want beef, but may not be able to pass up the lower prices of competing meats – at least not all the time.