There is light in the tunnel

Apr 26, 2013

Boxed beef started to move higher last week and beef markets were turning more active for middle meats. Let’s hope that folks feel an overwhelming need to fire up the grills after several weeks of pent up demand from the delay of grilling season. Lateseason snows have hammered Plains states the past few weeks. Moisture has arrived and now Mother Nature needs to turn up the heat a bit so we can see what this spring grass season and grilling season is going to be like.

Cattle markets have been going through painful price realignment over the past year. Massive losses at the feedlot and packer levels have forced them to become shrewd buyers of cattle. When the fed cattle futures hit $137 on the April contract, it appeared that profitability was on the horizon. The April contract is currently trading at $126.95. Unhedged cattle feeders took a $10/cwt. thumping on April cattle, which should have given many feeders some hindsight respect for risk management.

Retailers have found a little margin in selling beef and we all pray that they will start to feature beef in their stores. Beef prices have backed off their all-time high, which hit in January, when all Choice beef averaged $5.09 per pound; it is currently at $4.98 per pound.

Troy Vetterkind pointed out last week that, “Packers report buyer inquiry for middle meats has improved markedly and as such have been able to achieve higher price points on most of their rib and loin offerings. There has also been improvement in round meat business as well as in the coarse ground market and all of this is leading to higher cutout values, which are expected to continue into next week. Ground beef demand is slowly improving and price gains are expected going into the month of May. The boneless beef market doesn’t really show this as values on the lean cow beef have been steadily declining for the last couple of weeks, both in domestic and imported markets.”

He continued, “A lot of this price weakness has to do with slack demand the last couple weeks, but another factor is grinders did a real good job of covering their needs well ahead of expected shortfalls in beef supplies during the month of April. They bought a lot of beef and put it in cold storage late last year/first of this year to cover their spring needs ahead of expected price increases, and as such are working from those supplies now, which enables them to stay off the spot market now. In all though, look for higher beef prices going into next month. The rally may fall short of previous expectations but we should see a rally nonetheless.”

Feeder cattle markets appear to have a little more enthusiasm and prices have started to pick up over the prior week. We had a fairly big surprise in the Cattle on Feed report that showed feeder cattle placements up 6 percent over last March. Corn prices have fallen like a rock, with futures showing the nearby contract at $6.30. We’re coming into good feeding weather and it appears that cattle feeders may see some opportunity down the road. We understand that fed cattle breakevens are now in the $128 range and feeder cattle may have seen the seasonal low already. Although there doesn’t appear to be much cover for them on the board, so it looks like they may be betting on performance, not a hedge. Or I suppose you could hedge them and make up the loss on performance.

Andy Gottschalk at HedgersEdge said looking forward, “Weaker than expected consumer demand persists, contributing to limitations of price gains. An earlier than normal Easter combined with much colder and wetter conditions than normal, have deferred any significant demand improvement to-date. Mother Nature simply is not cooperating, thereby limiting what should be in the beginning of raising demand for beef. On that front we remain optimistic that May and June will seasonally provide a significant boost in demand. While the level of demand is likely to remain below year ago levels, the trend should be for demand to improve from current levels. Unlike last year, retail beef margins are improved. This will encourage retailers to feature beef more aggressively in the coming weeks; in fact we are already seeing evidence of some increase in beef features. The history of sales volume gains resulting in aggressive beef features is well documented.

Now we need temperatures to cooperate.”

Gottschalk continued, adding, “Beef exports YTD are down approximately 4.6 percent. Pork exports are also lower adding to the total domestic meat supply. For the year, the USDA is projecting beef exports at 2.42 billion pounds, down 1 percent. Beef imports are expected to be up 16 percent.” — PETE CROW