Fed cattle trade touched $200 live and $314 on dressed heifers in the northern Plains. Cattle feeders seemed determined to cross that magic market line. Two weeks ago, fed trade averaged $198 in the north and $192 in the southern Plains. Typically, the cattle and meat markets start to fall a bit after the Fourth of July holiday, which is a big ground beef consuming week.
Futures markets finally started to move higher as the June contract expires. June reached a new high at $192.92, advancing $3.45 on Wednesday. The August fed cattle contract was also higher to close at $186.75. Feeder cattle contracts also moved higher. It’s refreshing to see the futures markets start to respond to the cash markets.
The Choice beef cutout worked its way to $323, which may be the season high. Packers may start to lose their positive margin, which was razor thin to begin with, $18 per head according to HedgersEdge.com. We’re entering the dog days of summer, and it looks like it will be a long hot summer; beef demand usually declines 3%. But this spring’s market has been slow to respond to expected market swings.
Ground beef markets have been on fire. The cull cow and bull markets have never been higher. The 90% lean trimmings market has reached $360/cwt, and fresh 50% lean was trading at $102, which is pushing ground beef prices much higher. Cow slaughter is much smaller than normal but lean manufacturing beef imports are 22% higher than a year ago.
The last Cattle on Feed report didn’t seem to have any impact on futures markets even with the surprising rise in placements, which were about 4% higher than analysts’ expectations. Fed cattle marketing was just .02% higher than a year ago, which is also surprising because of the low slaughter rates during May, but is nearly 5% higher than the five-year average. Also, cattle on feed were 99.9% of last May or 7,000 head lower than last year.
Carcass weights have made a significant impact on total beef tonnage. Year-to-date cattle slaughter is down 4.4% from last year while beef production is down only 1.5%. Carcass weights are currently 35 pounds higher than a year ago. Carcass weights typically decline going into summer months, but cattle feeders are finding it more economical to add weight to their cattle rather than buy high-priced replacement feeder cattle.
Front-end fed cattle supplies, cattle on feed for 150 days, may keep a lid on advancing the fed market going in to fall. Marketings have fallen behind because of carcass weights. Fed cattle marketing needs to pick up this summer or carcass weights need to come down.
USDA came out with another proposed change to the Packers and Stockyards Act. The proposal has more to do with the poultry business than cattle. But there are vague references to fairness and market harm and competition for the cattle industry. I’m not sure about the competition aspect for the cattle industry because it sure seems quite competitive right now with fed cattle touching $200. The proposal is virtually the same proposal made under the Obama administration, which current USDA Secretary Tom Vilsack was a member of.
NCBA Vice President of Government Affairs Ethan Lane said the new rules were a direct attack on cattle producer profitability. “By creating criteria that effectively deems any innovation or differentiation in the marketplace improper, USDA is sending a clear message that cattle producers should not derive any benefit from the free market but instead be paid one low price regardless of quality, all in the name of so-called fairness,” he said.
The Meat Institute said, “Contrary to USDA’s assertion, these changes would introduce uncertainty into the market and de-couple the demand signals producers receive from beef consumers, including consumers’ willingness to pay for value-added attributes. At low points in the cattle cycle, like this year’s historically small cattle herd, it puts at risk the value producers earn from sustained beef demand, and as the expansion phase of the cattle cycle begins it would undermine the benefits earned from growing beef demand.”
Are you sure you want the government getting involved in ag markets? Remember those words, “I’m from the government and I’m here to help.” So be careful what you ask for. — PETE CROW
