New territory

Opinion
May 10, 2013

Wholesale beef prices finally moved over the $200 mark and have remained there for the past five days. Last Thursday, Choice beef was $3.00 higher at $204.67 in the afternoon report. Trade volume has been light as everyone tries to adjust to this new price point.

Many market analysts seem to think that it won’t stay over $200 for long Feeders sold cattle at $129 two weeks ago and $127 last week which may have earned them a long overdue buck. Packers still seemed to be clinging to the ropes as they were still losing $9.00 a head. Packers also have to fulfill Mothers’ Day and Memorial Day features booked weeks ago for deliver over the next few weeks.

Retailers have responded and were featuring strips and rib steaks at $6.00/lb. Choice ribs and loins were trading just over $3.00/lb on the wholesale beef cutout sheet so perhaps there is a little margin at the retail level.

With last week’s price rallies, many analysts think we’ve seen the high for the year. Our friends at Hedgers Edge don’t seem to think so. “Many people believe a seasonal top has been attained. We are not in that camp, since the retail beef price level and retail margin has improved versus last year. This will lead to more beef features in the coming weeks. The month of May-June represent the best demand period of the year. As such we are maintaining our $206 cutout target price level. The later should translate into record high fed cattle prices. Our cash price target, basis Western Kansas remains at $132-$134. Year to date cattle slaughter is down 2 percent versus the prior year while production is down 1.2 percent.”

Export business has contributed only modestly to the current rally, with items that benefit from exports (briskets and short plates) up about 5 percent from a year ago. The rise in middle meats has helped heal packer margins in the short term and supported high cattle values. Live steer prices in some parts of the country were above $130 cwt., in early May.

But what happens to middle meat prices—and the overall cutout for that matter—when Memorial Day features disappear and retailers once again go back to featuring less expensive proteins? Last year the cutout held up well into June but then dropped by almost $20 cwt. in July, pulling cattle down with it. Currently futures seem to be pricing a similar decline in cattle and beef values. Heavy placements from March and likely April as well have also weighed on the August contract currently at $120.45. And close to a contract low.

Feeder cattle futures also have continued to lose ground even as lower grain prices should theoretically make them more valuable. At this point, market participants continue to show a profound lack of confidence in the beef market for later in the year and into 2014, just the opposite of where they were only six months ago, when the April contract was at $138.

We have been waiting for this market to turn around for a while and it looks like we’ll have a good few months if consumers act as expected. With lower fuel prices they should have more disposable income and let’s hope they buy the beef they crave.

Grain prices have moved higher this past week with the nearby contract at $6.75 which will apply additional pressure to cattle feeders unless they bought their summer needs two weeks ago. Cool, wet weather has slowed corn crop planting with less than 20 percent of the crop in the ground. This shouldn’t affect yields as much as it will affect the amount of acres that get planted. The flip side is we’ve had some good spring rains in Colorado already so maybe well get some grass after all. So get yourself ready for a wild set of crop reports this summer. — PETE CROW

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