Beef Wrap February 13, 2021

The cash cattle trade has been very light this week, with prices being reported in the $113-114 range. Packers have been drawing hard on contract cattle in order to stay out of the cash market, but that strategy only works for a week or so. Cattle feeders probably have no qualms about carrying cattle over to next week given that a severe cold spell will limit any weight problems that might arise from holding cattle on feed longer. The storm that is coming this weekend is going to blanket the Southern Plains with snow and temperatures throughout the Plains are going to be very cold. The futures market exhibited a lot of strength late in the week as traders anticipated the weather that is to come. The cold spell will last almost a week and so that is almost sure to take carcass weights down pretty dramatically. It is also possible that there could be some death loss, but that will probably not be a major factor. Ifm not really sure why packers are being so stingy given that their margins this week were $340/hd. The Choice cutout lost only about $2 Friday-to-Friday while the Select was essentially unchanged. So, its not like the beef market is falling apart and packers could easily afford to add a few dollars to the cash cattle market. They may be forced to do that next week. In fact, I wouldnft be surprised to see the cattle market jump $2-3 next week. The Feb futures expire in 2 weeks and they finished the week over $117, so traders are already building in a substantial increase in the cash sometime in the next couple of weeks. This weekfs fed kill was unusually small at 471k. That was about 40k less than the week before. So, yes, beef availability is about to tighten up considerably. Some of the reduction in the kill was due to weather issues this week and some was due to scheduled maintenance at some plants. Ifm looking for next weekfs fed kill to be a little stronger, but still less than 500k. This weekfs carcass weight data showed a 6 pound drop in steer weights and that was really needed. We saw the DTDS weights drop considerably as a result. So, while Ifve been concerned about heavy carcass weights recently, it is starting to look like that might not be such a problem after all. Domestic beef demand still looks pretty good, but it does seem to be softening a bit. Soft beef demand is expected during February, so not much of a surprise there. The chart below shows that this week it was the chucks and rounds that led the weakness in the cutout, while ribs were a little stronger. This weekend is Valentinefs Day, which normally sees good foodservice and middle meat demand, but the pandemic will probably curtail that source of demand this year. The combined margin chart below has clearly turned lower, but that doesnft necessarily mean that we are in for a long spell of declining beef demand. The demand cycles in beef are more erratic and less dependable than the ones we see in pork. And, of course, it is always possible to have higher beef prices in the midst of declining demand if supply is sharply curtailed as it was with this week’s kill. Next week, buyers will find less beef available due to the very small kill this week and lighter carcass weights. That could provide a bit of a bump up in the cutouts. We will get a COF report next Friday and I’m guessing it will show January placements up 3.9%. February placements will probably be up 4-5%. So we are slowing building up the summer cattle supply, but first we have to get through the spring where availability will be limited by very light placements in Q4 of last year. If Q2 demand remains anywhere close to what wefve seen here in Q1, then price levels on all beef items could soar in Apr/May/Jun. Next week, keep an eye on the weather outcomes to discern whether or not the storms this weekend lived up to their billing. Watch those carcass weights for further declines. Ifm really having a hard time finding much in the way of bearish fundamentals at this juncture.
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