Beef Wrap June 25
So far, this week’s average cash cattle price is $125.57, up about
$3 from last week. Packers are still chasing Choice cattle and are
willing to pay up for them. The cutouts continued to fall, with the
Choice off $15.62 on a weekly average basis so far and the Select
off $14.31. As a result, packer margins are compressing, but are
still a very long way from getting back to normal. My estimate has
margins at just over $800/head this week. Packers could have paid
$185 for cattle and still not lost money. It looks to me like the fed
kill is going to come in close to 525k this week, very similar to last
week. The flow model suggests that packers will need to advance
the fed kill to 530k in July and then do something close to 515k per
week in August. Both should be attainable, so I don’t see a
problem with backing cattle up again unless something odd (like a
cyberattack) should happen.
This market has had more than its share of odd events in the past
couple of years. The chart below indicates that the middle meats
are where the big losses have been. The end cuts are holding up
amazingly well for this point in the summer. It is true that demand
is starting to fade now, but it is coming down from such high levels
that it might not get back to normal until after Labor Day. As a
result, I’ve the Choice cutout working lower from here but still
coming in close to $260 at the end of summer. That compares with
values near $230 in each of the last two years at the end of
summer. That means packers will continue to have lots of margin
and will not need to pressure the cattle market lower for many
weeks to come.
The problem will come in the fall, when demand returns to more
typical levels. Then, we could see cash cattle pricing in the
$110-115 range fairly easily. Friday we will get a COF report and
I’m expecting it to show May placements down 8-9%. The average
trade guess is for placements to be down 4.6%. Carcass weights
posted a strong drop today and that was a surprise to me. The
DTDS weights are now below zero, which tells me that feedyards
are rapidly regaining currentness. That also supports the idea that
cash cattle won’t move lower anytime soon. Export data Thursday
morning looked better for beef than it did for pork. China continues
to take large quantities of US beef, even as they scale back their
demand for US pork.
In all, the cattle and beef markets appear to be in a pretty good
place. Beef prices are falling, but still very high and cattle feeders
are almost getting enough for the cattle to break-even. Cattle
feeding margins are only $79/head in the red at the moment.
Next week, watch the end meats. It is pretty clear the middles will
go lower, but the ends have been a lot more resilient than I would
have expected. The drop in carcass weights could also mean
some further strength for fat trim, which is already trading over $1.
