Packers are slowly increasing slaughter numbers and moving cattle into the supply lines. However, we’ll be lucky to see 525,000 head processed. They have been moving 91,000 head per day for the past few days. Packers have a big job ahead; they need to process the backlog of cattle and bring down wholesale beef prices to make beef affordable for consumers. We will more than likely take a demand hit from this COVID-19 virus fiasco. Smaller supplies of beef and high unemployment aren’t good elements for selling beef.
Packers have been supportive of cattle prices, holding the line at $115 for many feeders, much higher than futures markets would support. Negotiated fed trade for the week was slow all week with moderate demand. There were 659,290 head sold through Thursday afternoon and live prices ranged between $110-117; the weighted average was $111.32, and dressed trade was between $168-185. With a weighted average of $179.18, there were 13,700 head priced on the formula grid trade. They averaged $167.70 and weighed 899 lbs.
Futures markets were not very supportive of the cash markets. All contracts were down Thursday. June live cattle were down 75 cents to $93.12 and August was down $2.27 to $96.15. Feeder cattle were also tough with May declining $1.50 to $123.80 and August feeders down $1.92 to close at $131.15.
Cassie Fish in The Beef report said, “Beef prices are starting to fall from their record high. Spot prices on the box beef cutout reflect a small portion of beef sales. Consumers have realized some price increases, but retailers prefer to keep prices level. The Choice cut out fell $15.07 to $450.92 and Select was down only 92 cents to $437.16. Trim markets were also in decline with 90 percent trim trading at $294.63 and 50-50 trim was at $284.04.
“Wholesale boxed beef prices are finally correcting after the most historic outlier rally in history. The highs made in most cuts will likely stand unchallenged for many years. Tyson Foods chose to lower beef prices 30 percent on some items, giving retailers and consumers a break. So far, the chuck and round that make up ground beef, are falling the fastest.
“Retail beef prices for April were released yesterday and the data showed a big spike to all-time highs, taking out the 2015 high. Given that wholesale prices climbed even higher in May as the production shortage intensified as a result of COVID-19 in plants, look for even higher retail prices for this month and likely for June as well. At least a definitive top in wholesale beef prices will lessen panic. As production increases over the coming weeks and months, look for boxed beef values to tumble further, eventually trading back under $300 and even $250. That’s another $150 to $200 from here,” Fish continued.
“Packers also made an effort this week to support negotiated cash cattle prices, with overall prices about $7 higher than a week ago. Expectations now are that packers may well support cash at steady next week while boxed beef prices decline, voluntarily giving up margin.
What is unclear is what will happen once FI slaughter returns to +600k head. Boxes will certainly fall but what price packers will pay for cattle in light of the dramatic backlog of market-ready fed cattle is unknown. Even if the kill can return to 650k head per week and maintain at that level and placements in May are down 25 percent, the backlog will be overwhelming. This is the tragedy of COVID-19 for the cattle industry.”
Feeder cattle
Oklahoma National Stockyards in Oklahoma City offered 11,500 head, and compared to the prior week, feeder steers under 850 lbs. were $5-10 higher; over 850 lbs. were $1-4 higher; feeder heifers were $1-5 higher; and steer and heifer calves were $1-6 higher. Demand was considered good for all classes despite cattle futures trading mostly in the red. Quality was mostly average, yet 750-lb. steers at National Stockyards reported a much stronger market Thursday, offering 11,200 head trading at $129.05 on the weighted average. The latest CME Feeder Index was at $123.52 and moving higher.
The Cattle Report summarized the situation: “There has been a sharp and steady improvement in replacement prices but now questions are open-ended about the proper level for prices in a post-coronavirus world. Feedlots will want to see some evidence of a plan to work off the surplus fed cattle supply before taking on more risk on new purchases. Some feed yards are finding restricted space as fed cattle movement has slowed. It is impossible to back up 1 million cattle without impacting pen space.
“The backup of cattle in the beef pipeline stops with the breeders. Processors beat up on feedlot prices and feedlots beat up on replacement prices but ultimately the harm is placed on the backs of the breeders who have watched increases in all of their input cost and now must face the potential for unsupportable calf prices. The natural and inevitable reaction is herd liquidation. This is not wholesale liquidation like a drought, but gradual reductions in the size of the nation’s breeding herd.”
Superior livestock auction held their weekly sale Thursday and sold heavy cattle quite well. For instance, 300 900-lb. steers that were NHTC, Gap 4, verified natural Sim-Angus cross brought $145. Another set of 120 850-lb. steers, which were NHTC, Vac 60, sold for $130, and 435 760-lb. steers in North Dakota were NHTC, Gap1, Source and age verified brought $155. — Pete Crow, WLJ publisher
