Trim market takes off
Have you been watching the 50 percent trim markets? You should. It’s been like watching a NASA launch.
Today’s fat trim value is almost 6.5 times more than what it was seven months ago. To make matters more impressive—or concerning—most of those gains happened in the last two weeks.
On Oct. 12, 2016, 50 percent (chemical lean fresh) trim set its recent low of $31.62/cwt., roughly half of what prices were during the height of the “pink slime” controversy in 2012. Since then, the market gained impressively, setting a new record with a national weighted average of $203.37/cwt. last Monday.
While the seven-month spread from recent low to industry record is impressive, so too is the impressive surge during this month alone. On Monday, May 1, 50 percent trim was $117.50/cwt., meaning last Monday’s record-setting prices represented a 73 percent increase in just two weeks.
Andrew Gottschalk of Hedgers Edge described the recent surge in 50 percent trim as confirmation of the “current” condition of the fed sector and of seasonal demand for ground beef. Troy Vetterkind and the CME Daily Livestock Report also figured seasonal demand into the equation behind 50 percent trim’s recent verticality.
As the market approaches Memorial Day—the top grilling holiday of the year— demand for ground beef does seem to have increased insomuch as prices have increased. According to US- DA data, average retail prices nationally for all uncooked ground beef have increased since February 2017 to $4.08/lb. in April (most recent data).
Prices for “lean and extra lean” ground beef—generally a consumer favorite in ground beef categories— were steady at an average of $5.54/lb. in January and February of this year, but have since been increasing to $5.70 in April.
However, an interesting demand measure focused on consumer intentions suggests a potential problem.
According to the most recent edition of the Oklahoma State University’s Food Demand Survey, surveyed consumers said they plan to buy less beef in May compared to April, and are not as willing to spend as much for ground beef.
Respondents said their willingness to pay—the survey’s measure of demand— for “hamburger” in May ($4.16/lb.) declined from what they were willing to pay in April ($4.26/lb.). Current responses additionally showed lower demand for ground beef than in May 2016 where respondents said they’d be willing to pay $4.31/lb.
The survey does not define “hamburger” in terms of grind formulations as does the beef industry, but if the survey results can be generalized to the public at large, the declining willingness to pay could conflict with rising retail prices.
The most recent USDA National Retail Report, covering the week of May 12-18, listed 90 percent ground beef formulations as averaging $4.63. The report additionally noted increased feature activity related to ground beef (see Table 1). But even last week there were signs that 50 percent trim prices might have topped.
“Panic fill-in product buying for the holiday period should come to a halt by mid-week,” predicted Gottschalk last Tuesday. “We are continuing to confirm that retailers are responding to the vertical advance in beef cutout values by advancing their average retail beef prices. This should be expected, as the advance in the beef cutout has all but wiped out retail beef margins.”
Fifty-percent trim, along with the ribeye area and the chuck, were credited last week with most of the recent run-up in the cutout values.
“The surge in 50 percent trim price has been phenomenal. Ribeye prices are often volatile, but recently had one of their periodic spikesup. Finally, wholesale chuck items recently moved contra-seasonally higher,” summarized the CME Daily Livestock Report, but it also had a note of warning.
“Three different items came together to cause the recent cutout value surge, and those same items may reverse quickly.” — WLJ