The live cattle market is now out of intensive care. But it remains in recovery mode after the COVID-19 pandemic impacted cattle prices from mid-April through mid-July. Prices advanced unexpectedly in the month to Oct. 11. But the $108.26/cwt live price was well below the spring high of $117.06/cwt in the third week of May and far below the likely weekly high of the year of $124.47/cwt set the second week of January. Now prices have softened again (to $105.07 the week before last) even though front-end cattle supplies have tightened.
U.S. cattle feeders had started the year full of optimism, which was largely satisfied in the first quarter. Prices in the quarter averaged $118.32/cwt live. But they plummeted in the second quarter to $105.79/cwt live and were even lower in the third quarter at $101/cwt live. Prices are likely to be stronger in the fourth quarter and might average $110-112/cwt live. But this would still mean an annual average of $109/cwt live or less, well below 2019’s annual average of $116.78/cwt live.
The main impetus for an advance in prices in the fourth quarter is that fed beef processing margins remain close to $200 per head after averaging above $300 that throughout September. However, October normally sees the start of a seasonal rally in wholesale beef prices that extends into December. The Choice boxed beef cutout last year advanced $25/cwt in five weeks after the second week of October. But cutout values did the opposite last month, with the Choice cutout sliding more than $10/cwt in the first three weeks.
Any rally in November and into December will be extremely muted compared to last year. COVID-19 cases are surging again, and reimposed restrictions will severely curtail holiday dining out, company parties, banquets and other such events this year. So the cutout will not get anywhere near as much support as last year.
Americans meanwhile have taken higher retail beef prices in their stride this year. USDA’s Choice beef price averaged $6.37 per pound, up 6 percent on a year ago. The All Fresh price of $6.28 per pound was up 8.5 percent. But retail beef demand has remained strong. That in large part is because consumers continue to transfer a lot of their food dollars from foodservice to retail establishments and will continue to do so because restaurant reopening remain very slow.
A new report details how consumers’ food dollars flipped from foodservice to retail establishments March through July because of the COVID-19 pandemic. The FMI-Food Industry Association’s 2020 Power of Foodservice at Retail report notes that dollars spent for at-home food and away-from-home food quickly flipped with the onset of COVID-19. Food at-home dollars moved from 50 percent in February to 68 percent in April, and food-away-from-home dollars went from 52 percent in February to 32 percent in April. Retail foodservice dollars were down even further at 17 percent of dollars spent March through July, says the report.
Another report, from USDA, says American consumers will pay 9 percent more for beef and veal in grocery stores this year versus 2019. They will pay 5.5 percent more for pork and 4.5 percent for poultry. Meat and poultry prices overall will rise 6.5 percent this year, more than double their usual rate.
Grocery store prices for meat are declining after their springtime coronavirus surge but more slowly than expected, says USDA in its monthly Food Price Outlook. Stubbornly high meat prices prompted USDA to forecast food inflation of 3 percent this year, the highest rate since 3.7 percent in 2011. Meat prices have continued to decline but the pace at which they are declining is not fast enough to achieve average 2020 prices below pre-COVID-19 levels, it says.
Meanwhile, the U.S. beef industry is producing a record percentage of USDA Prime beef. The downside to Prime’s record is that it has reduced the premium that Prime beef receives over Choice beef. Also impacting the premium is that the COVID-19 pandemic shut down white tablecloth restaurants and other outlets that normally buy a lot of Prime beef.
Cattle in the week ended Oct. 17 graded 10.23 percent Prime. This went against the all-time record of 12.55 percent in the week ended May 23. It was surprising that Prime’s premium over Choice in the October week was $34.92/cwt, as it had been much smaller in prior months. This suggests that Americans have discovered that buying a Prime-grade steak at Costco or elsewhere is a far better, and safer, deal than eating at a steakhouse. — Steve Kay
(Steve Kay is editor/publisher ofCattle Buyers Weekly,an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707-765-1725. Kay’s Korner appears exclusively in WLJ.)
