Reality often tempers optimism in most parts of one’s life. When my newsletter’s website crashed in late January, I hoped that a new one would be up and running in about two weeks. It took five weeks and more blood, sweat and tears than I had bargained for.
As I noted in my January column, the year began with much promise. Cattle numbers were down and beef demand had remained strong through 2023. Demand held up for the first two months of this year. But concerns are growing that it might weaken as retail beef prices increase in the coming weeks. Prices are already well above year ago levels.
USDA’s All Fresh Beef price in February averaged $7.83/lb., up two cents from January and up 8.3% from February last year. The Choice price averaged $8.08/lb., the same as January’s price but up 6.5% from last year. In contrast, pork prices averaged $4.76/lb., down 0.2% from last year, and chicken prices averaged $2.37/lb., down 2.1%.
The price divergence between beef and the competing is a red flag for beef demand, say analysts. Given the advance in wholesale beef prices in the first weeks of March, consumers will be confronted with rising retail beef prices in the coming weeks, says Andrew Gottschalk, HedgersEdge.com.
Resistance will initially be encountered until consumers eventually become acclimated to accepting the higher price levels. But wholesale cutout values declined the last week of the month despite sharply reduced weekly beef production, he says. The latter condition begs the question regarding beef demand. Will it recover post-Easter? Given that Easter was early this year, several weeks might pass before seasonal demand improvement can be expected, he says.
Meanwhile, cash live cattle prices the week before last declined for the first time in six weeks. Live prices averaged $188.23/cwt, down $1.33/cwt from the prior week. Dressed prices averaged $299.49/cwt, down $2.64/cwt from the prior week.
Prices fell after a selloff that Monday in the futures market, largely because of reports of the highly pathogenic avian influenza that struck a number of dairy herds and resulted in a person contracting the virus.
The reports also caused the April contract last Monday to plummet 492 points to close at $180.07/cwt, while the June and August contracts lost 492 points and 610 points, respectively. The irony is that no beef cattle have been found to have contracted the virus. But the futures market operates both on optimism and fear, and clearly did not like what it was reading about.
The April contract closed on March 21 at $188.37/cwt, so it had lost 830 points by last Monday.
This definitely does not bode well for cash live cattle prices this month. The sizable positive basis between cash and futures prices will favor those with hedged cattle. As in times past, their acceptance of lower cash prices will keep a tight lid on cash prices on the open market.
Cattle feeders certainly won’t gain any respite from the large number of cattle on feed. Feedlot placements in February were record high for the month. The total of 1.890 million head was 9.7% above February last year and was 3.3 percentage points higher than analysts’ average forecast of 106.4%. February marketings at 1.793 million head were up 3.4% but down 1.1% on the previous year after taking one extra slaughter day this February into account. The March 1 cattle on feed total of 11.838 million head was up 1.3% on last year and was 0.4% higher than forecast. The total was 153,000 head higher than a year ago.
Ominously, lower-than-required weekly harvest levels continue to add the marketable front-end fed cattle supply. This loading to the front-end projects is expected to continue into the late summer, says Gottschalk. The number of cattle on feed 150 days or more on April 1 through Sept. 1 will be up 17%, up 10%, up 10%, up 9%, up 19% and up 9% each month on the previous year, he says.
Meanwhile, sharply reduced beef production fails to halt renewed weakness in beef cutout values, as I noted earlier. I cannot recall a time when steer and heifer slaughter was this low, even at this time of the year. The estimated total the week before last was 466,000 head. The reason for this, as it has been for weeks, is not a lack of cattle. It is negative packer margins, in part caused by weak beef demand. The start of the grilling season cannot come soon enough. — Steve Kay, WLJ columnist
(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 in WLJ.)
