June 27, 2005
The boxed beef cutout fell out of bed last week, getting down to the $133 level on Choice product. The Choice/Select spread got under $2; it was under $2 last July, but is normally between $6-8 this time of year, and carcass weights are going north fast.
Father= s day beef sales were good, on ground beef, but not so good on the steak sales. Slaughter levels are staying at high levels for these timesC665,000 head last week. But, the fact of the matter is, cattle are starting to stack up in feed lots. We found an $83 market a lot faster than expected.
Now, if you ask a cattle feeder if they= re current he will say yesCthey always say yes. But if you look at the fundamental data, cattle are getting bigger and fatter, and front-end supplies are bigger. We could see the fed market in the $70s later this summer, unless a few things happen.
Ironically, the fat off these fed cattle is pretty valuable as 50 percent trim is trading for $75 per cwt. All you can make with that is hamburger, which is in great demand. We= ve seen a $30 slide in the boxed beef cutout in less than 60 days, which I= d have to say exceeds any normal seasonal shift.
Packers were losing $21 per head last week. Their normal tactic of slowing down beef production to raise the cutout value and raise their margins hasn= t been working for the past several months. Just over a year ago retailers were caught upside down on the beef market and haven= t been eager to buy much more beef than they need or can effectively feature. By my estimations beef demand is falling out of bed and we need some help.
It isn= t that people don= t want to eat beef. Instead, its that the price has risen beyond many house hold budgets. Yes, the steak houses are full, and it looks like there is all kinds of demand for the stuff. However, you have to keep in mind that the steak house isn= t a good indicator of beef demand.
Anyway, retailers stepped up to the plate last week and are booking product for late summer featuring. Lower beef prices aren= t what anyone wants to hear about, but the retailers haven= t been eager to sell the stuff at the $150 level; $132 boxed beef is more appealing and allows them to feature. USDA= s last survey showed that average retail beef prices were at $4.25 when a little over a year ago it was just over $3. You could say that beef may have priced itself out of the protein market, or certainly reduced the customer base.
With the prospects of rising beef production in the next few years we= re going to need to see some changes in the demand side of this market. I would venture to say we need the export markets to pick up some of the slack.
Beef exports are starting to show some real promise in recent months and believe it or not Canada is importing beefCnot very much but they are buying. Exports to Canada are up a whopping 698 percent over the first four months of the year, compared to 2004. But, it= s pretty easy to show percentage gains like that when you were close to zero. Canada imported just over 12,000 metric tons for the first quarter; U.S. imports from Canada are about 10 times that much.
Mexican beef imports are almost back to normal and are up 334 percent, from a year ago, at 76,635 metric tons. Overall, beef exports are up 150 percent from the same point a year ago. So I guess you could say that there are a few bright spots in the beef export market. Just think if Japan and Korea started taking product, this could change the prospects for this late summer fed market in a big way.
Last week, USDA announced they have budgeted $144 million for the Market Access Program and Quality Samples Programs to promote Ag exports. These programs have been around for a while. Roughly 70 ag organizations will receive funds and you= ll be happy to know that the Meat Export Federation (MEF) gets the single largest share of the pot at $12 million. Ag Secretary Mike Johanns said that agriculture exports account for 25 percent of farm cash receipts, which illustrates just how valuable these export markets are. If you don= t think that creating trade agreements help agriculture, think again. U.S. farm exports are big business and it is vital to put some of these issues like BSE behind us. C PETE CROW