COMMENTS

Opinion
Apr 23, 2010

A stable base

Retail meat markets are starting to respond with higher prices at the meat case. The recent rally in the cattle markets looks like it will stick around for awhile. The boxed beef cutout appears to have found its comfort level in the mid- to upper-$160 range for the Choice product last week and has been trading steady there. Slaughter levels are also starting to creep up going into our high-demand summer season.

The ground beef market is, without question, the foundation for the beef industry with nearly half of the nation’s beef production utilized by the sector. The demand for ground beef is huge, with over 12 billion pounds produced each year. The average price for 90 percent lean ground beef last week was $3.94 and 80 percent lean was trading at $2.59 a pound.

The ground beef market has been on fire going in to summer grilling season. Everything is pointing to a more stable market. Ninety percent fresh lean beef was trading at $168.01 last week and even more remarkable was the 50 percent trim market, which was trading at $94.33, perhaps the highest level this product has ever reached. Cow beef is trading at $92, so all the components for ground beef are in solid territory.

The slaughter cow market is a seasonal market, with the low season happening right now. Auction markets have reported slaughter cows selling for $75 and higher and slaughter bulls for $85. The cow beef cutout is at $133. It’s still a simple supply and demand market right now. The supply of slaughter cows is low and demand is high.

“The ground beef market is said to be short of the current level of demand ahead of Memorial Day, so this had packers offering steer/heifer grinds at higher money and had grinders aggressively bidding the domestic/imported boneless beef markets higher in an attempt to secure enough product to cover orders,” market analyst Troy Vetterkind said last week. “The beef market is a little firmer than I thought it would be this week, and in terms of loin meat and ground beef, supplies sound a little short, so this is likely going to keep cutout values supported for the balance of the week. The Choice cutout likely runs into buyer resistance at $170, once everyone gets their near term/forward needs covered.”

Cow slaughter so far in 2010 has been about even with a year ago, but was 19 percent above the 2004-2008 average. The year-ago cow slaughter level so far in 2010 has been the result of more beef cows slaughtered and fewer dairy cows. In 2009, there were several dairy buyouts that put extra cows on the market. Beef cow slaughter was nearly 8 percent higher than last year from January through late March, while dairy cow slaughter was down 6 percent. When compared to the 2004-2008 average, both beef cow and dairy cow slaughter numbers so far in 2010 are larger, up 22 and 16 percent, respectively.

Imports also play a big role in ground beef production and, in nearly all cases, imports from all foreign sources are down. Imports from Australia alone are down 45 percent from a year ago and New Zealand is down 25 percent. It appears that both these countries have redirected product sales to Asian markets. Likewise, U.S. imports of Canadian cull cows and bulls have been above a year ago, with most of the significant year-to-year increases posted earlier in the year as imports have seasonally declined in recent weeks. For January through late March, U.S. imports of Canadian cull cows and bulls averaged about 5,600 head per week versus around 4,400 head per week last year. Above yearago imports of Canadian cull cows, this year has been one factor contributing to larger U.S. cow slaughter so far in 2010.

There also appears to be good demand for bred cows and bred replacement heifers. It’s clear that some folks are restocking. But others appear to be selling out cowherds, which is supported by the extra beef cow slaughter. Another interesting aspect of the market this spring has been the increase in fed heifer slaughter, which is up 5 percent from a year ago. That would suggest producers are not holding back many replacement heifers.

One has to wonder if we’ll see any substantial growth in the nation’s cow herd this year. Conditions look good for anyone wanting to expand their herd. The grass conditions and high calf prices should be good motivators for growth in numbers. — PETE CROW

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