— Energy prices curtail restaurant demand.
Early optimism for a steady to $1 stronger fed cattle market was eroded
last week when trade occurred Thursday at prices mostly $2-3 lower
dressed, $1 lower live. Packing plants were starting to see profitable
margins decrease and projections for late summer and fall beef demand
decline as rising energy prices start to take a toll on consumer demand.
By Thursday, Nebraska cattle feeders had traded approximately 55,000
head at $127-128 dressed, while Kansas feedlots had traded 30,000 head
at mostly $81-81.50 live. Texas cattle feeders were still holding out
for $82 at press time, however, packers were holding steady, offering
Last Thursday, the packer margin index was positive $2-3 per head, in
comparison with $15 per head profit the prior week. According to
analysts, that deterioration was related to an increase in fuel prices
and lackluster beef demand in the restaurant sector.
“It’s our estimation that about 40 percent of all beef middle meats are
consumed away from the house,” said Jim Robb, chief analyst at the
Livestock Marketing Information Center. “Most of that consumption is at
mid-range priced restaurants that dot themselves along interstates.”
Robb said that recent spikes in fuel prices are really starting to weigh
on peoples’ travel habits and the slowdown in travel numbers will impact
beef demand pretty profoundly if high fuel prices prevail.
Reed Marquotte, M&Z Livestock Analytics, said energy costs are also
beginning to weigh on feedlot and packer profit margins.
“Transportation and cold storage costs are both escalating at a very
rapid pace due to gas and oil prices skyrocketing,” he said. “We didn’t
see much of a rally in (boxed) beef prices through the week, and that
resulted in packers pulling the reins back on both the volume of their
cattle purchases and the price paid for those cattle.”
After rallying about $3 through Wednesday, boxed beef prices saw a $1.50
turnaround on Thursday. Choice boxed beef was selling for $134.62 per
cwt, while Select was at $124.70. Trade volume was moderate last week,
which analysts felt was disappointing, citing the lack of forward
post-holiday buying as a reason for concern.
Packers were in need of fewer cattle last week due to a short kill week
coming up because of the Monday holiday. As a result, 115-120,000 fewer
cattle are needed by packers to fill their demand for the week.
Slaughter volume last week was steady with the previous week, at 486,000
head through packing houses last Monday through Thursday. For the week
ending Aug. 27, 661,000 head of cattle were processed, steady with the
previous week, and about 40,000 head higher than needed to meet current
level of beef demand.
“Last week’s kill certainly curtailed any need for extra cattle this
week or next, particularly if Labor Day beef movement is as low as some
projections indicate,” said Marquotte.
Heavier finishing weights of cattle also continue to reduce the number
of cattle needed by packers, analysts said. For the week ending Aug. 27,
the average live weight of all cattle processed was 1,266 pounds, three
pounds heavier than the week prior. The average carcass hanging weight
was 780 pounds, two pounds heavier than two weeks ago and 15-20 pounds
heavier than the same week last year.
Solid was the best word to describe feeder markets last week. Despite
dwindling margins and optimism in the fed market, and in the face of
stories of devastation from the south, buyers were purchasing feeder
calves at prices generally above the prior week throughout the west.
With few exceptions, analysts noted that demand was good for loads of
uniform thin to moderate flesh cattle. Quality appears to be improving
as larger lots start heading for the sale barns.
Grazing prospects throu-ghout winter wheat country appear to be very
good and stockers are sourcing cattle now. However, the good grazing
conditions are also allowing producers to keep cattle on pastures
longer, resulting in supply shortage, particularly in the northern-tier
where demand has been strong on rising prices for the past several
weeks. Corn prices also helped strengthen the feeder cattle market last
week, as cash corn, last Thursday, was between $2.05-2.10 per bushel, or
$3.65-3.80 per cwt. Prices were down from beginning of the month range
of $2.25 per bushel or $4-plus per cwt, which added support last week.
Prices in the southern tier continue to rise as supplies hold steady and
dry conditions ease. In Oklahoma, markets for feeder steers and heifers
were $1-3 higher on solid demand and stronger attendance at sales.
Because of the long, dry stretch of weather during mid-summer, cattle
are arriving at the sale in good feeding condition, noted as slightly
thin to moderate flesh.
In Joplin, MO, prices for steers were $2-4 higher for mid-weight steers
and $3-5 higher for heifers with some lots selling as much as $8 higher.
At other markets across the southern tier, prices were noted to be at
least firm and steady. Most sales noted prices $1 or more higher.
Supplies across the north are still moderate at best, however, some good
volumes are just starting to be seen at steady to slightly higher
prices. Continued good weather is allowing cattle producers the
opportunity to graze longer; the result is a slow trickle of calves into
the markets which is keeping prices higher for producers. As long as
supplies don’t overwhelm the northern markets, feeder prices should stay
solid. Working against producers will be continuing feedlot losses.
Analysts are still predicting short-term supplies in September will
continue to exceed demand, meaning lower prices for the fed market.
Feeder losses will weigh on the feeder market as supplies start to
increase toward their annual peak.
Also, transportation costs, which are rising out of control, are going
to affect every segment of the beef industry and create a great deal of
uncertainty as every sector of the economy tightens its belt to absorb
Analysts last week said fuel costs can also trigger a radical spike in
fertilizer costs, particularly ammonia and other liquid nitrogen-based
compounds. Robb said because those chemicals are used greatly in
southern pasture grazing situations, some stocker operators may have to
pay less for calves and lighter feeder animals late this year.
“There’s a direct correlation between fuel prices and these fertilizer
costs, and that correlation is about one to one, meaning that the jump
seen in gas and oil prices is what can be expected from a fertilizer
standpoint,” said Robb.
He also said, however, that producers who have poultry waste available
can help themselves out from a cost standpoint. Chicken manure is as
rich in nitrogen as many liquid fertilizers and is much more cost
“If application of chicken waste becomes more prevalent, maybe the calf
market won’t soften up as much as we think,” he said.