Beef prices drop
Light demand and lower prices characterized cash fed cattle last week. Northern Plains saw $121 live and $193-194 dressed. Southern Plains saw lighter trades with $119-121 live in Texas, $120-121 in Kansas, and $121-122 in Colorado.
Activity peaked Wednesday at sharply lower prices compared to the previous week.
Analysts called the markets done by end of day Wednesday in light of last week’s shorter trade week due to Good Friday.
Futures took a strong hit as well. Near-month fed futures started the week off on an optimistic note, but proceeded to drop throughout the week. Wednesday, April cattle futures posted the lowest close since mid-December at $117.90.
June futures closed the same day at $115.12 with analysts expecting it to continue into the $110-115 range before any rally might occur from improved summer demand.
Though some of this is seasonal, a lot of the futures decline is attributed to the weak wholesale beef demand. This in turn owes a lot to the ongoing controversy over lean finely textured beef (LFTB).
Weak beef demand has resulted in weaker boxed beef prices. Choice cutout started the week at $184.10 and fell to $179.22 by midday Thursday. Select cutout similarly shed about $5, starting the week at $182.35 and dropping to $177.48 by midday Thursday.
As with the prior week, packers were still losing between $100-120 a head last week. The combination of declining boxed prices and declining slaughter numbers was called a “lethal combination” by one analyst.
Consumer demand was unseasonably weak, with many analysts crediting the LFTB controversy. Hopes of modest rallies exist following the holiday weekend as unseasonably warm spring weather in many areas may prompt earlier than usual grilling demand.
Exports were down 13,200 metric tons compared to the prior week. Some export destinations—Japan, Mexico, Russia, South Korea, and Canada—saw week-to-week increases despite this. Imports from Australia and New Zealand were up, compounding the issue of decreased domestic demand.
Middle meats held steady most of the week with expectations of increased steak demand following the Easter and Passover holidays. End meats and chucks received extensive discounts as packers tried to move backlogged product in the face of weak demand. The biggest discounts were seen in 50 percent trim, which will be covered in greater detail farther down.
Industry expectations for the week’s slaughter volume opened Monday at 585,000 head. Each day saw a processing volume at least 1,000 head below that of the prior week. In general, volume was down and worrisome to some analysts.
One of the biggest stories of last week’s markets was 50 percent trim. Consumer rejection of LFTB has had wide ripple effects on the industry. Added to Beef Products, Inc.’s recent shut-downs of three of its four plants, AFA Foods— one of the nation’s largest grinders producing ground beef—filed for bankruptcy last week.
Consumer rejection of LFTB and the closing of so many plants have created a vacuum of excess supply and increasingly weak demand for 50 percent trim.
Throughout March, as the media smear campaign raged on over LFTB, 50 percent trim prices took a nosedive, starting the month of March at $1/ pound and starting April at roughly 80cents/pound.
“Another round of deep discounts showed up throughout the beef entire carcass [Wednesday], especially in the trim market where anything with fat attached to it lost big money,” said Troy Vetterkind of Vetterkind Cattle Brokerage.
The sharply diminished value of 50 percent trim has had a dramatic impact on the whole value of cattle. Several analysts tied this to the drop in boxed beef prices and fed cash cattle futures.
The drop in 50 percent trim value has had a beneficial effect on 90 percent trim prices however.
“The removal of LFTB has also taken several hundred million pounds of product out of the lean beef supply, supporting the price of 90 percent trimmings,” according to CME Group. “…[T]he price of this product is holding steady as lower supplies offset the negative impact of the news stories on ground beef in general.”
Demand for lean cow beef has remained steady in light of the supply/demand chaos of the LFTB controversy. Vetterkind calls it “the one bright spot” in last week’s cash cattle market.
Cow beef dressed values were steady at $125 as of midday Thursday. Ninety percent trim increased $0.69 to $218.5 while 50 percent trim continued to plummet, down $12.88 from the prior day to $59.04.
Cash negotiations for feeder cattle were weak, with many areas reporting sales significantly below last week and some reporting no sales at all. Some interest exists for lightweight steer calves under 600 pounds, but mostly interest is low.
Near-month feeder cattle futures started the week mixed, then followed the rest of the market to steadily decline throughout the week. By market close Wednesday, April feeder futures stood at $135 with the CME feeder index at $152.91. Opening call Thursday was mixed, and by midday Thursday stood at $148.30.
Deferred futures of feeders took a much stronger hit. September through January 2013 feeder futures dropped by several dollars.
Several elements contributed to the declines in feeder negotiations and futures. Weak domestic beef demand in light of the LFTB controversy is one large issue, but others include feed commodity futures and the early-summer-like weather many areas are experiencing.
The spike in corn futures followed by sharp declines in cattle futures is credited with limiting demand for feeder cattle. Farmers are expected to plant 95.9 million acres of corn this year.
This is 1.9 million more acres than the previous estimate, 1.2 million more than the average of analysts’ guesses, and the highest acreage level of corn planted since 1937.
Despite this anticipation of increased corn, quarterly corn stockpiles of only 6.01 billion bushels—8 percent less than the same time last year—are still keeping feed costs high. This has been exerting itself in the form of weakened demand for feeder cattle.
Widespread rains throughout the Plains and the Midwest and the continued unseasonably warm early spring has pastures looking more like mid-May than early April. This and the still-high feed costs are both reducing demand for feeders and prompting many to hold back calves for on-range backgrounding rather than going to feed.
Vetterkind commented on the likely continued weakness of the feeder market.
“This defensive trend in the cash feeder trade will likely continue for the balance of the week and into the next given what is going on in the futures and cash fed cattle. …Expect feeder cattle markets to be another notch lower next week.”
In Oklahoma City, OK, feeder steers and heifers sold for $4-8 lower than the prior week. Steer calves were steady to $2 lower while heifer calves were $10-15 lower.
In Amarillo, TX, feeder steers and heifers over 700 lbs traded mostly steady on a light test again with very few comparable sales. Offerings of light calves under 600 lbs were limited, not enough for an accurate trend to be identified.
Joplin Regional Stockyards saw steers under 700 lbs and heifers under 600 lbs sell $4-8 lower, and yearling steers over 700 lbs and heifers over 600 lbs at $1-3 lower. Demand and supply of feeders were both moderate.
The St. Joseph, MO, Stockyards saw steer calves under 650 lbs sell $4-8 lower and heifer calves under 700 lbs at $7-12 lower.
A lighter test of heavier feeder cattle traded $2-4 lower. It was noted that grass interests in the area are weakening and the grazing condition of the available calves was not as attractive to buyers as the prior week. — WLJ