COMMENTS

Opinion
Mar 2, 2012
Higher and higher

It’s remarkable that fed cattle are flirting with a $130 market and it’s not enough for cattle feeders to be profitable. Market analysts are projecting that fed cattle will find a top value somewhere around $137 and it should come sometime in the next 60 days. Beef packers have been slowing beef production, processing around 610,000 head a week for the past few weeks. They have done their job in raising wholesale beef values. The Choice cutout was at $198.80 last week, however on very low trade volume. Many market analysts think this cutout is about as high as we can expect for now.

Carcass weights have been the topic of discussion among market watchers, and they all seem to be concerned that they are getting too large and signaling a backlog in fed cattle supplies. Typically, this may be true under normal market circumstances, but I think we could all say that there is nothing normal about today’s cattle markets.

Yes, carcass weights are higher than last year.

Along with these higher weights we are seeing more cattle grade Choice, with 65 percent grading Choice last week. But the real question is, are we creating a backlog of cattle?

The last cattle on feed report said that we have 2 percent more cattle in feedlots than a year ago. This year, age and weight placements are all over the map, making it hard to predict when cattle will be market ready. Another consideration is the fact that we’ve had a big decline in 1,000-head and smaller feedlots leaving the business. With these adjustments, comparing year-to-year statistics on the Cattle on Feed report brings into question the accuracy.

In the big picture, the industry has produced 5.3 percent less beef so far this year, and has killed 6.1 percent fewer cattle. In last week’s slaughter mix, 46.1 percent were fed steers, down 1.4 percent from last year. Heifer slaughter was 31.5 percent, down 1 percent, and 20.7 percent of last week’s slaughter were cows, up 2.1 percent from a year ago. So whether or not these higher steer and heifer weights are going to make a difference in the market is anyone’s guess at this point. I’m really more concerned about cow slaughter and future production than heavier carcass weights on fed steers and heifers.

Two weeks ago, we reported that the Texas Cattle Feeders Association’s weekly show list reported that their members had 19,567 head of market-ready cattle available. This past week, they added 5,000 head to the list, which could represent some carryover from the prior week; however, the published show list was still 34 percent lower than a year ago.

All the market analysts are worried about consumer demand and the effect high gas prices are having on consumers’ disposable income, which is a valid concern. However, I would have to believe that this time, high gas prices are not having the same wicked shock effect on consumers as they did last time.

In the winter, beef demand is typically lower and we never see the market highs in the winter months. In another six weeks, we should start to see some interest in beef featuring from retailers for the summer grilling holidays, and summer demand will start to require a larger beef production and we’ll see just how good domestic demand for beef is.

Beef export demand has been the best thing to happen to the U.S. beef industry in recent years. There was much concern that beef exports wouldn’t be able to continue the rapid growth we saw this last year, although for the first seven weeks of 2012, beef exports are up 7 percent over last year. And they are up without much help from South Korea, Mexico and Japan, which are all importing less and are some of our largest markets. I would expect to see South Korea import more after the free trade agreement starts this month. And I would expect to see Japan go to over 30 months on their age restrictions sometime this year.

Demand for beef is a hard thing to project and going into summer, our high demand season, supplies should be even smaller than they are now.

Market analysts do most of their work by comparing statistics from one year to the next, and this year, we have seen so many fundamentals of the market that are incomparable to other years. So I’m not going to get too concerned about heavier carcass weights backing up the supply of marketready cattle, simply because there are fewer cattle to market. — PETE CROW

{rating_box}