Beef Wrap September 6
Coming into the week, it appeared that the cash cattle market was poised to trade steady or only a little lower, but outside forces intervened once again. On Thursday, there was news of anthrax infecting part of a cattle herd in Wyoming and that sent the futures sharply lower, prompting cattle feeders in the South to agree to $181, down $2 from the week before. On Friday, another meltdown in the stock market weighed on cattle futures, resulting in further cash trade at lower money. It now looks like pricing is close to parity between the North and the South and when all of the data is tabulated on Monday, I expect the 5-area price to print around $181.10, down $2.70 from the week before. The beef market held up much better than the cattle market with both the Choice and Select cutouts nearly steady on a weekly average basis. Ribs were the biggest surprise as that primal gained close to $9 on the week when many were expecting the ribs to slump after Labor Day. On the end cut side, the chuck primal gained a little over $3 while the round primal lost a similar amount, resulting in a near wash with respect to the impact on the cutout. We normally expect beef demand to falter during September, but so far there is little sign of that. The fundamental price forecasts were raised this week in response to beef’s strong showing and now project a more gradual easing as we month through September and into October. The lean trimmings market remains stubbornly firm, with the 90s only losing about $1 this week. The 50s lost close to $4, but that was a much smaller decline than what was seen during the last weeks of August. Of course, demand might not deserve all of the credit for this week’s better-than-expected performance in the beef market, the reduced production due to the holiday may have also contributed. That should become clearer next week as packers resume a full production schedule. This week’s fed kill tallied 441k, down 54k from the week before as packers ran a fairly large Saturday. Next week, I expect the fed kill to be back in the 495-500k range. The number of market-ready cattle is expected to slowly shrink as September wears on and could be even smaller still in October. By the end of October, the flow model suggests that fed kills could be down to around 480k per week. Steer carcass weights held steady this week at 931 pounds, but are still in a seasonal uptrend that won’t likely peak until sometime in November. This week USDA provided the official trade data for the month of July and it showed beef exports up 7.3% YOY—the first YOY increase in almost two years. That is impressive, but what’s even more impressive is that beef imports were up a whopping 27.3% YOY. The US was a net importer of beef during July to the tune of 146 million pounds. The last time that the US posted net import numbers that strong was back in 2015 near the bottom of the last cattle cycle. With 90s prices holding at sky-high levels, it is a good bet that the US will remain a strong net importer for the foreseeable future. Beef wasn’t the only thing registering strong import numbers; feeder cattle imports from Mexico were also very strong at 122k head during July, up almost 65% YOY. Drought has parched northern Mexico this year and cattle feeders in the Southern US are taking advantage of that by bringing large numbers across the border to finish in the US, helping to explain why feedyard placements have been so strong in recent months. Producers in Canada aren’t feeling the same sense of urgency to send cattle to the US as overall feeder cattle shipments from our neighbor to the north are up only about 1% YTD. Packer margins this week are pegged at -$20/head, the best they have been since December of last year. If the cutouts don’t erode very much next week, then packer margins might stand a chance of reaching the breakeven mark. With the decline in cattle prices over the past few weeks, cattle feeding margins have come under pressure and are now only about $40/head in the black. They may have a little more downside risk, but I’m not expecting feeding margins to go red for very long this fall. Feedyard placements during August look like they may be flat to slightly higher YOY, but with cattle feeding margins quickly evaporating, it wouldn’t be surprising to see YOY declines in placements for September and October. Next week, look for the cutouts to ease a little under the weight of full production. Cash cattle prices could also have a little more downside risk, but the bottom in the cash market is probably very near.
