Home . Articles . Comments . The heat is on

The heat is on

Jul 7, 2017

Pete Crow

The Fourth of July is over and we’re officially in the long hot summer doldrums for beef sales, at least conventional wisdom and history would suggest. But things are a little different. The packing industry is making money hand over fist, record profits. Demand for beef has been tremendous. The industry has processed 853,000 more cattle than a year ago.

I’m somewhat surprised that cattle feeders haven’t been able to gain any leverage over the packers with profits of $200 per head. We’ve watched fed cattle values go up to $150 before Memorial Day and just after the Fourth of July fed cattle are trading between $116 to $118, a $32 drop. It always appears that profits in this business are made by leveraging them away from the other guy in the supply chain.

Futures markets have not been helpful in the price discovery process. One day they’re up $1.50; the next they’re down $3. Volatility remains. Summer is typically when fed cattle supplies are at their highest and packers process lots of cattle. Then we have lots of beef on the market. But cattle feeders have been very aggressive marketers and ready supplies are low, but building.

Beef sales have been robust but it’s a long way until Labor Day, the next big beef consumption holiday.

Last week fed cattle traded between $116 and $118 while the August live cattle futures contract drifted lower to $113.55, still a positive cash basis but not as wide as we’ve seen most of spring.

It also appears that cattle feeders are letting them get a little bigger. Steer and heifer carcass weights have moved a few pounds higher, but are still 12 pounds below a year ago. The market watchers contend that the ready supplies of finished cattle are still scarce and will remain that way into October.

Cassie Fish with Consolidated Beef Producers pointed out in her Thursday blog that “Many of the cattle on the show list have breakevens below $110, and cattle feeders are intent on grabbing profits. It is widely known fed cattle supplies will peak in August and September, and the race is on to stay in front of what is perceived by many as an inevitable decline,” she says.

“All the above played beautifully into the packer hands last week. Packers have lost little margin as boxed beef values have declined the past few weeks as they have backed fed cattle prices down in tandem. Packers want to replenish inventories this week and have found doing so easier than expected,” Fish added.

“As evidence of the packer prosperity and good beef demand, the actual slaughter totals just released by the USDA showed the industry killed 516,656 fed steers and heifers for the week ended June 24, topping the prior week by a little less than 1,000, making it the highest fed kill of 2017 and the largest since July 2013,” she continues. “Total cattle kill that week was 638,636 head. The industry is maintaining currentness with this slaughter level.”

When the Choice beef cutout hit $2.50 retailers became reluctant buyers. There were some great steak features from Mother’s Day through the Fourth of July. Some feared that retailers would quit featuring steak items and turn to other meats. The cutout has fallen to the $223 level and volume is starting to pick up. Grocery retailers have been struggling to get customers into stores. Beef has traditionally been one of their strongest featured items to draw folks into the stores to purchase items with a higher margin. Let’s hope they continue during July and August.

Many analysts were speculating that the summer low would be around $117 and we’re already there, but now we’re hearing talk of $110, which would put cattle feeders back into the red on closeouts. When that happens, they will take it out on feeder cattle sellers. Feeder cattle prices have been much better than expected and the last few video sales have been quite good. In Superior’s Big Horn sale, it appeared that they moved calf prices higher by about $10 during the sale.

This week they hold their Rocky Mountain sale, which is typically five days long. Western Video will hold their Reno sale as well. Typically, these are some of the stronger sales. The early sales for falldelivery calves tend to be the strongest. I would have to say that nine years out of 10, it’s been better to sell calves and yearlings earlier than later. I expect the same this year. — PETE CROW

Sales Calendar

Goto live view to see the calendar