Fed cattle prices were pretty much steady last week, and packers are buying for a short week without a Memorial Day slaughter. Slaughter levels have been running behind what we would consider a normal pace. They processed 670,000 head two weeks ago and are expected to be near that level for last week. But they have been running 635,000 head, or so, most of May; April slaughter was the best since 2008 at 1.938 million head.

Retail beef margins have all but vanished and retailers have started driving prices higher. The April all-fresh beef price was at $6.76/lb. Last year it was $7.59/lb. during the start of the COVID-19 rush on beef. The Choice beef cutout has reached a near-record level of $3.30/lb., which was very close to last year’s COVID high and there is roughly 25 percent more product on the market.

Memorial Day has always signaled the true start of grilling season and the best beef demand period of the year. Retailers have been a bit weak on their weekly beef features. Safeway and Kroger offered T-bones last week for $5.77/lb. The week before they were offering London broils and sirloin in the $3.99 range. Retail featuring on beef is down 6.1 percent from last year. This could be problematic.

How high can beef prices go before we have a consumer revolt? I’d say we’re getting close. Lean hog prices are at $115.30, which is a record high so that is giving beef some price cover, and chicken was trading at $2.02. Meat prices are all high at this point.

I know cattlemen are getting frustrated that we haven’t quite cleared the backlog of fed cattle and have live prices higher. According to HedgersEdge.com, that should change soon. They’re saying the “declining front-end fed cattle supplies should be sufficient to turn fed cattle prices to the upside.” Just for some perspective, fed cattle reached their historical high November 2014 at $168.25/cwt live.

Packer throughput has been a problem. There are plenty of finished cattle, but packers can’t produce enough. I know there is a lot of talk that packers are playing both ends of the market, and I’m sure they do to some extent, but I doubt that is the case.

Packer gross margins, per head, have been the best and boxed beef values appear very high on the spot market. Most beef is sold to retailers on a negotiated formula basis. Restaurants want product that has been further processed. It all trades at different price points.

You have all heard it before: Labor is a problem, but it’s a problem in every industry right now and it’s been a problem for packers for a long time. Shackle space is not the issue. The problem is having enough people to fabricate product and put it in boxes.

John Navlika at Sterling Marketing said recently, “The impact of protocols to protect against COVID and the current tight labor situation is largely realized in the fabrication and further processing areas of the plant. A plant might run the kill floor at capacity, but those cattle still have to be fabricated and processed and that is where the squeeze on capacity utilization occurs.”

Capacity of a plant and the ability to utilize that capacity has been a problem. Navlika has been keeping capacity estimates on fed cattle plants and cow plants since 1988 and he claims there is enough packing capacity but COVID has reduced utilization.

Apparently packing capacity in 1988 was 145,000 head per day; it fell to as low of 125,000 head in 2016 and now stands at 133,225 head per day. Recently, on their best days we’ve seen packers process 123,000 head per day at both fed cattle and cow plants.

Labor has been a problem for every industry for a host of reasons: the $300 a week unemployment supplement; childcare; not wanting to be exposed to COVID. I’m told the starting wage at beef plants is now $22 per hour and benefits. Reports suggest that 10 to 15 percent of employees do not show up for work, which reduces utilization to somewhere around 80 percent.

I’m not trying to stick up for the packers. It is obnoxious that they are making so much money. My hope is that the packing industry is so profitable that it will attract some new major players and create competition that way. But we’ve seen that story play out plenty of times. Keep praying for Western rain. — PETE CROW

What do you think?

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