Weekly cattle slaughter has gotten off to a slow start this year, with the total the first four weeks up only 56,000 head on last year. That’s despite the Jan. 1 Cattle on Feed (COF) total being up 884,000 head on last year.
The 8 percent larger COF number is because of an unprecedented 10 months of year-over-year increases in feedlot placements. Given the increases began last March, one would have expected the industry would have needed to start harvesting a lot more cattle than it has so far this year. The placements were spread out because a lot of lightweight cattle were placed last fall due to extremely dry conditions in key cow-calf states. But more and more feedlot cattle will become market-ready as spring approaches. Feedlot marketing rates and slaughter levels of steers and heifers will need to start picking up soon to avoid a serious backlog of cattle developing.
This month however might not see much of an increase as February usually has the lowest monthly slaughter levels of the year. In addition, February is a big month for retail pork sales, so beef sales might suffer from the competition. Compounding this is that packer margins last week slid into the red for the first time since early April last year. Weather-related issues forced live cattle prices far higher in January than anyone expected, with a $6-7 per cwt. rally in live prices in the third and fourth weeks of the month alone.
One thing is for certain. A lot more cattle will eventually come to market and have to be processed. This year’s total commercial cattle slaughter might increase by 1.206 million head from 2017 to 33.387 million head, according to the Livestock Marketing Information Center. The big question is: Does the beef packing industry have the capacity to harvest that many more cattle?
My analysis suggests it does. But it will depend on how much packers will be able to increase their Monday-Friday kills and their Saturday kills to process these additional cattle. Packers last year processed 580,000 or 32 percent more cattle on Saturdays than they did in 2016. Saturday kills totaled 2.391 million head for a weekly average of 45,986 head. The much larger Saturday kills reflected larger supplies of both fed and non-fed cattle, especially as the year progressed. Last year’s total commercial cattle slaughter was an estimated 32.181 million head, up 1.603 million head on 2016’s total.
The industry currently has the capacity to process about 128,000 head per day in all plants, from the largest to the smallest locker plants. Slaughter capacity of the top 30 packers currently stands at 126,715 head per day. So theoretically, packers could increase their average Saturday kills to well over 50,000 per week by all running one full shift. Packers might find it preferable to handle the increased cattle numbers by raising their Monday through Friday kills. These kills scarcely went over 120,000 head in any week last year. But they will have to raise their Saturday kills as well to accommodate the extra 1.2 million head to be processed. The biggest impediment to doing this is the availability of trained workers. Packers tell me a lack of workers is their biggest issue.
In other beef packing news, Leucadia National Corporation is mulling whether to sell part or all of its 79 percent stake in National Beef Packing to take advantage of National’s two record earnings years in a row. Leucadia paid top dollar in 2011 for its stake in National, forking out $944 million in cash and assuming $360 million of National’s long-term debt. Leucadia is reportedly working with advisers to explore options for its stake. But it is unclear how much the business might fetch from a suitor. In a regulatory filing, Leucadia listed the net book value of its National Beef investment at $630 million as of Dec. 31, 2016. National Beef is the industry’s fourth largest beef processor. It processed 3.110 million cattle in 2016 and had sales of $6.984 billion.
Whom Leucadia might find to buy part or all of its share is unclear. National Beef’s other owners, which include U.S. Premium Beef, are unlikely to want to reinvest more in the business. The top three beef processors, Tyson Foods, JBS USA Beef and Cargill won’t be allowed by the Justice Department (DOJ) to acquire National, given that the DOJ in 2008 blocked JBS’s attempted acquisition of National. This means a potential buyer would have to come from outside the processing industry. It is most unlikely that any cattle feeding operation would have the desire or means to buy it. So, Leucadia might be seeking interest from potential overseas parties, perhaps in Japan or China. — Steve Kay
