It’s been a wild but wonderful ride in the cattle markets so far this fall. After several weeks of struggling to make any gains, the cash live cattle market exploded the last week of October. Cattle feeders became more determined to capture some of the premium in the December live cattle contract and were rewarded with a $6 per cwt. increase in prices. Feeder cattle prices meanwhile have far surpassed expectations and prices are currently 25-35 percent above the levels of one year ago.
Several factors in the supply and demand equation created this liftoff. As always, the first was beef demand. Beef sales remain stronger than expected in grocery stores while beef exports continue to be well above year-ago levels. This year’s strong demand is becoming the market story of the decade.
Lower wholesale boxed beef prices have led to lower everyday retail prices and more aggressive retail beef features. At the same time, more job creation and rising wages have put more disposable income in the hands of American consumers than for at least a decade. They are spending more of that income on beef, even though plentiful supplies of pork and chicken are much cheaper. Beef has consistently been the volume leader in retail meat sales for at least the past two months.
Lower retail beef prices than last year are a big factor in creating these volume sales. September’s retail beef prices, notably for Choice beef, fell in September from August. The average Choice beef price was $5.78 per pound, down from $5.97 in August and down 1.5 percent from a year ago. USDA’s All Beef retail price averaged $5.73 per pound, down from $5.77 and down 0.3 percent from last year.
Retailers are likely to keep featuring beef aggressively through the end of the year, say analysts. Their focus from late October until next week will be on stocking turkeys for the Nov. 23 Thanksgiving holiday. But they will start reordering beef aggressively the week before that.
Beef exports meanwhile are running 10 percent above year-ago levels. They are much higher than last year in some weeks. Sales the week before last were 43 percent higher than the same week last year and provided the largest weekly volume since June 2013. Export sales to NAFTA countries declined but there was a large increase to other export destinations such as Japan, South Korea and other Asian markets.
Steer and heifer carcass weights head the positive factors on the supply side. They remain well below year-ago levels and are below their five-year average. For the week ended Oct. 19, both categories were 19 pounds below last year. Cattle performed in feedlots better this summer than for some years. But cattle feeders marketed cattle aggressively. September marketings were up 7.4 percent on last year after taking into account one less slaughter day than last year. Marketings stayed on pace in October despite the December live cattle futures contract being at a big premium to cash prices.
The premium the week before last forced packers to pay a lot more for cattle. Live prices shot up to an average $117 per cwt. live and $181.54 per cwt. dressed. Packers were prepared to pay more because strong retail and export sales raised wholesale beef prices again. They were likely much stingier last week and will be going forward. But there is every chance prices could advance to $120 per cwt. as long as the December contract holds its big premium.
Prices for calves and feeder cattle have ridden on the coattails of strong beef demand and a premium futures structure for live cattle. Cattle feeders have been prepared to pay more for replacements because the futures into April suggest they will be rewarded with positive feeding margins.
The caution flag is out however because supplies of market-ready cattle are forecast to start increasing sharply from the middle of this month. The market will be well-supplied into April. Beef demand, even lighter than year-earlier carcass weights and aggressive feedlot marketings, will be the three critical elements for live cattle and feeder cattle prices.
Spare a thought meanwhile for Florida’s cattle ranchers. Many ranches suffered severe damage when Hurricane Irma struck. Florida’s Department of Agriculture and Consumer Services calculates the damage wrought by Irma to the state’s beef cattle industry will total $237.5 million. This is a huge loss, as the Florida beef cattle sector is one of Florida’s most important land uses. More than 1.7 million animals graze on approximately 6.5 million acres of pasture and woodlands and the sector has annual sales of $549 million. — Steve Kay
