The Labor Day holiday is an appropriate time for the live cattle and boxed beef markets to take stock of what has occurred the past three weeks and what the markets will do this month. The U.S. beef industry has endured “weather” and BSE-related markets but has never experienced a “fire” market that resulted from the fire at Tyson Foods’ Holcomb, KS plant.
The fire, as you know, has taken out more than 30,000 head per week of capacity for several months. The loss will most directly impact cattle feeders on the Southern Plains, as Kansas had 110,000 more cattle on feed on Aug. 1 than a year earlier, and Texas had 40,000 more on feed. That’s against a national inventory that was record large for the date but up only 19,000 head than a year ago.
Conversely, Nebraska had 140,000 fewer cattle on feed on Aug. 1 than last year. So the fire hit the very region that could least afford to lose any capacity. Had a fire put a large northern plant out of action, I suspect the market impact would have been much less. On the other hand, futures traders are not the most logical bunch and there might still have been a big selloff in live cattle futures.
In any event, the futures market grossly over-reacted and held its own fire sale of live cattle contracts. The market then appeared to admit its misreading of the fire’s impact and began to recover. But the damage to cash live cattle prices had been done, with 5-area average prices the week after the fire falling $5.69 per cwt live and $11.28 per cwt dressed. Live prices inched higher the following week and dressed prices added $4.39 per cwt. So, a modest recovery appeared to be underway. It might have stalled last week however, as packers were buying cattle for a holiday-shortened production week.
The futures market’s big mistake is that it did not take into account Tyson’s ability to shift production to its other five plants and other packers’ ability to increase their daily and Saturday slaughter levels. Weekly and Saturday kill totals bore this out. The week after the fire saw a total of 651,000 head slaughtered, with 74,000 head on Saturday. The following week was 654,000 head and 77,000 head, respectively. These were by far the two largest Saturday kills of the year for a non-holiday week.
The big question though is whether packers have sufficient workers to sustain such kills during the week but particularly on Saturdays for several more months. At least they have plenty of money to pay overtime, as their operating margins soared to record levels. This was due both to the sharp decline in live cattle prices and a surge in boxed beef prices. As analysts have noted, packers caught some beef buyers short-bought for their Labor Day holiday needs. So spot market beef prices soared as those buyers had to pay up or go without. The prices the next week caught up with those who buy on formula, as that pricing is mostly based on the spot market prices of the week before.
On the demand side of the market, retail beef sales have been positive all summer. The industry will have been hoping for more of the same last week and through the Labor Day holiday. The period is the third largest for retail beef sales after the July 4 and Memorial Day holiday weeks. But once the holiday is behind the market, retail sales and boxed beef prices are likely to weaken. This will likely mean smaller kills as a result.
The comprehensive cutout last year averaged $207.78 per cwt the last week of August then declined through September and early October by more than $7.50 per cwt. It then recovered sharply in November. Analysts expect the cutouts to decline similarly this month. But the Choice cutout will remain far above last September’s levels, when the Choice averaged $203.52 per cwt.
On a different note, I was thrilled to see that Progressive Beef’s unique transparency program has become one of the first to be recognized by the U.S. Roundtable for Sustainable Beef for being an industry leader in sustainable beef production. The cattle management and sustainability program for feedlot operators continues to grow after being designed in 2000. In 2020, there will be more than 3 million head marketed through its program. Currently, 48 feedlots are certified or in the process of becoming certified and participation has doubled in the last year. More than 1 million cattle were under the program a year ago when I wrote about the program in my Sept. 3, 2018 column. That’s remarkable progress in a year. — Steve Kay
(Steve Kay is editor/publisher of Cattle Buyers Weekly, an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707-765-1725. Kay’s Korner appears exclusively inWLJ.)
