Input costs remained high through the first quarter of the year, along with higher cattle prices and food prices, according to the latest Rabobank North American Agribusiness Review.
“We are closing in on three years since the start of a price and cost escalation that pulled the farm inputs sector from a near seven-year floor,” the report read. “In that time, some key input costs spiked by as much as 3.5x, necessitating growers to evaluate both product and process choices.”
Corn prices have held strong and local bids on the futures market remain elevated.
“From an energy component in animal diets, this does not bode well given that feed grain substitutes are running thin,” the bank said.
Soybean inventories as of the end of March were at the lowest level with respect to the end-of-year estimate. Low supplies will continue to keep pressure on feed costs until new crops replenish inventories.
Cattle prices
Prices for all classes of cattle were higher in early 2023. The cattle market was expected to start the year higher based on tighter supplies, according to the report, but demand concerns created uncertainty regarding upside potential. Market fundamentals have remained mostly friendly, the bank said, and all classes of cattle remain in an uptrend from the late 2022 lows.
Fed cattle and calf prices will likely come under pressure in the upcoming weeks, the report said. U.S. 500-pound steer prices averaged $227/cwt year to date, 800-lb. steers averaged $179/cwt, and the five-area fed steer price was $161/cwt. All three of these prices are 16% higher than last year. Cull cow prices are 19% higher than last year, averaging $77/cwt.
Better demand is the reason for higher market potential, with the boxed beef cutout averaging $278/cwt year to date. When accounting for inflation, this is down 4% in real dollars compared to last year, the report said. Beef supplies were down 3% in the first quarter and wholesale beef demand was down 8% compared to last year.
“That seems like bad news,” the report said. “However, that is still the second-highest first quarter beef demand in the last 20 years. Beef is continuing to move through the system, offering support to the cattle market.”
The percentage of steers and heifers grading Prime and Choice peaked in early March at 85%, which was near the 2021 and 2022 annual highs. Quality grade will begin to decrease as it heads into its seasonal decline, and the spreads between Prime, Choice and Select will remain stout, the bank said. The Prime-Choice spread was $40/cwt in March, the highest in that period since 2012. The Choice-Select spread averaged $12, which was the highest March average on record.
“As quality grade declines seasonally into the summer, and consumer demand for grilling improves, the cutout spreads could become impulsively wider,” the bank said.
Food prices
On the consumer side, food prices in March were flat compared to a month earlier, following a gradual decline from July 2022. However, food prices are still 8.5% higher year over year, well above the total consumer price index of 5%. Food-at-home prices dropped for the first time since September 2020, down to -0.3% compared to 0.3% in February. Grocery prices are still 8.4% higher than restaurant prices, but if adjusted for inflation, grocery sales fell by about 6% during the first two months of the year, according to the report.
Restaurant prices continue to increase, up 0.6% from January-March, but restaurant sales were up by about 11% in January and February compared to the same time last year.
“When it comes to inflation, restaurants have historically taken a ‘steady as she goes’ approach to raising prices,” the report read. “This has benefited restaurants where their prices (compared with grocery stores) seemed to increase at a lower rate, making it somewhat attractive in consumers’ eyes.” — Anna Miller, WLJ managing editor
