Beef Wrap June 04
The big news this week was the disruptions at JBS facilities due to
a cyberattack. The attack occurred on Sunday, May 30.
Fortunately, there was no kill scheduled for Monday since it was a
holiday. Most of the JBS beef plants were down on Tuesday and
the daily kill only amounted to 94k, when 120k was more typical.
Apparently, JBS was better prepared for this type of event than
most companies and it had most of its plants running again on
Wednesday. By Thursday, the daily kill was back to normal levels.
The futures market sold off hard on the news, but rebounded the
next day as traders came to realize that the $119-120 packers were
paying for cash cattle was already a gift and that cash cattle prices
wouldn’t move lower because of cattle going un-slaughtered this
week. The beef market reacted in spectacular fashion, with both
cutouts jumping over $5 on Tuesday and Wednesday. The kill
slowdown happened at a very bad time since the industry was
already expecting a short kill week due to Monday’s holiday. The
fact that the cutouts jumped so much and so quickly on the news
tells me that beef demand remains very, very good. Buyers are
mostly in a hand-to-mouth mode and any inkling that supply could
be limited sends them rushing into the market to pay whatever they
must for coverage.
Interestingly, it was the chuck and round cuts that benefited the
most from this week’s burst of activity. The cutouts are likely to
continue higher over the next few days until we can get this short
kill week solidly in the rear view mirror. Even then, I don’t look for
the cutouts to set back much. Father’s Day is right around the
corner and that is a pretty important beef event as well. Packer
margins this week came in at $1,042/head, so there is plenty of
financial incentive for packers to kill as many as they can. I’m
looking for a big Saturday kill this week as a result. The fed kill
should bounce back to around 520k next week and may approach
530k at times between now and the end of July.
By my calculation, that would still leave some cattle un-slaughtered
and thus it will add to the backlog that needs to be worked through
later this summer if packers can find the labor they need to make
that happen. Packers will likely continue to pay $119-120 for cattle
even though they could probably get them bought several dollars
cheaper if the market was allowed to clear naturally.
The best news of the week came in the weight data today, which
showed steer carcasses down six pounds from the week before
and it looks like weights may be down a little more next week.
However, I don’t look for much more softening in carcass weights
beyond that and they should turn higher soon on their seasonal
trek toward a top in late October. All of my beef price forecasts
for this week turned out to be too low once again, so upward
revisions were necessary. Calling the top in this market seems
like an impossible task. This week’s revisions pushed the forecast
top in the cutouts out to early July. That may still be too soon.
It seems to me that since packers are going to be forced to raise
wages in their plants substantially, that meat prices will be higher
than normal going forward. They will still gyrate up and down, but
at higher levels that what we were used to prior to 2021. Beef
buyers need to be prepared for that new reality once this episode