Beef Wrap July 2
Cash cattle prices averaged about $1.50 lower this week to $123.80,
but there are some pretty strong regional differences in pricing. Cattle
in the Southern Plains are bringing $122 or less while cattle in the
North are bringing from $125 to $127. There are two factors at work
here. The first is just a general cattle availability situation, where the
number of market-ready animals is larger in the South. The second is
driven by how well the cattle grade.
The wide Choice-Select spread ($21 Friday afternoon) is prompting
packers to pay a strong premium for cattle that grade better and those
cattle tend to reside in the North. Nonetheless, it is impressive that the
cattle didn’t give up more ground given that the Choice cutout lost over
$21 on a weekly average basis and the Select was down almost $9. I
have to admit that the beef market is coming down faster than I
envisioned it would and I’ve adjusted my price forecasts lower in
response. The chart below indicates that it is still the middle meats that
are primarily responsible for the collapse in the cutouts recently. End
meats were down some this week, but are at much higher levels that
one would expect for this time of year. Importantly, the 50s market is
actually strengthening. Same goes for the 90s market.
I think we are seeing pretty strong demand for grinds now that we are
beyond Father’s Day and in the case of the 50s, supply is being limited
by declining carcass weights. I thought that the bottom had been made
for carcass weights, but was proven wrong this week when steer
weights were reported three pounds lower to 879 lbs. It is really
unusual to see weights still declining this late in the summer. Normally
they bottom by mid-May. The DTDS weights are looking far better than
they did just a few weeks ago, with the steer DTDS now at -10. That
suggests that feedyards have improved their currentness dramatically
in the past few weeks. That may also be helping producers in the
North to press for higher cash prices.
As far as kills go, packers have done an admirable job of keeping
weekly fed slaughter up around 525k, in the weeks following the JBS
cyberattack. This week’s fed kill came in at 492k as packers did a
rather light Saturday since it is Independence Day weekend. Next
week should be even smaller, perhaps around 440k, since there will be
no kill on Monday. It will be interesting to see if these holiday-reduced
kills can slow down the slide in the cutouts. Once the holiday is behind
us, I’d expect packers to go back to kills around 525-530k for a few
weeks, but as August approaches, the flow model tells me that there
will be fewer cattle available and thus we could see the fed kill drop
back toward 515k or perhaps even 510k at times.
August usually brings on some institutional buying interest as
schools and colleges prepare to open for the fall semester. With
so many schools being shuttered last year, it’s a pretty good bet
that many have zero meat inventory and thus may have to come
back into the market a little more aggressively than normal. So we
may find out sometime in early August where the bottom is in the
beef market. The demand side of the market feels like inner tube
that is hissing with an air leak.
Apparently now that consumers can do things besides stay at
home, they have reduced their demand for beef and other animal
proteins. This is in-line with what I’ve been saying all along that
when the pandemic ends, meat demand should decline. It is
worth noting that foodservice is “back” in a big way, yet that is not
supporting the cutouts at all. That is because demand at retail is
declining more than demand is increasing in the foodservice
sector. I’ve included the scatter diagram for July and you can see
that I’m still forecasting the 2021 data point to be well above the
regression line, but it is not nearly as high over the line as it was
back in May and June. My guess the ’21 data point will move
closer to the regression line in the next few months as the air
continues to come out of the demand side of the market.
Export demand for US beef appears to be quite strong and that is
one of the factors that should help support beef prices above
historical norms even when all of the pandemic boost in domestic
demand has dissipated. China seems to like US beef more than
US pork recently and as long as they are gobbling up large
quantities of US beef, there will be a strong tone to the export
market. Next week, watch for the declines in the beef market to
slow as smaller production starts to be realized. Also watch
carcass weights since they may surprise everyone and continue
lower.
