Superior Livestock Auction held their first highlight sale, the Corn Belt Classic, last Thursday. The futures markets didn’t offer any help opening the day $2 lower. Cattle feeders need to start filling some pens and it looks like they may get some cattle bought right. Futures markets haven’t been doing anybody any favors lately but it’s looking like they may have already priced cattle looking forward. It’s going to be a long, hot summer.
The packing industry has moved slaughter rates up to around 117,000 head per day. With a good strong Saturday kill, we should start to see about 650,000 processed per week. I don’t feel very good about seeing slaughter levels getting back to 675,000 head again, unless we get a couple new plants. Packers have had to make some serious adjustments to how they do business and now that the word “pandemic” is firmly in our vocabularies, we will see new, long-term, permanent, protocols in packing facilities.
It’s been interesting to watch how the dynamics of this industry can change and how everyone responds, recalling the runup in the beef cutout to $475, and then the rapid fall back to $240. When this beef rally started the cutout was just $220.
The ground beef market is always worth watching since 60 percent of all beef is consumed as hamburger. When folks started hoarding ground beef, 90 lean trim was $224 cwt and 50 percent lean fat trim was around $30 cwt. At the peak, 90s were $308/cwt and 50s spent a few days over $300.
Then packers started killing those big cattle. Carcass weights are a full 50 lbs. higher than the same time last year, which I’m told is like processing another 30,000 head per week. Those cattle produced a lot of fat, which there is a market for. But they also produced more Prime beef than we’ve ever seen before. Prime beef production has been averaging 13 percent the past several weeks. There is more Prime beef in the slaughter mix than Select beef these days.
So where are we headed in this business? Packer margins have declined. The Livestock Marketing Information Center told me that gross packer margins have backed up to $800 per head and the high several weeks ago was $1,839 when the cutout was $475, which are obscene profits. We’ll find the real story soon with Tyson and JBS in their quarterly reports. But the price of fed cattle is going to drift lower. This pandemic has created a million-head backup in slaughter-ready cattle. That will put a lot of pressure on the market and on down the line. Where is all this beef going to go? The only reason we’re not getting more beef to the consumer is packing capacity.
The folks who write the Cattle Report said, “This past week’s slaughter was 636,000—only 29,000 under last year’s 665,000. Beef production, however, was near last year’s levels because of large outweighs of cattle. Total beef production was 522 million pounds compared to 525 last year. The coming weeks are likely to report slaughter volumes equal to and above last year. Combined with carcass weights currently 50 pounds greater than last year, the market will be overwhelmed with beef and there is currently NO plan to deal with the excess beef.
“Joining the problem of excess beef on the market is the problem of creating an environment for price discovery between cattle owners and processors. With 1 million extra cattle hanging over the market, cattle owners will have no leverage to bargain. They will be forced to create a Dutch auction of ever-declining prices, bidding for a slaughter slot. This path will inevitably lead to price destruction that could last well into next year.”
I’m sure every cow-calf producer is wondering what their 550-lb. calves will be worth this fall and how these big video sales will price fall delivery calves. So far, 160 Montana Angus calves for late September delivery, weighing 650 lbs., brought $152/cwt. Ninety-six steers weighing 470 lbs. brought $158/cwt for October delivery, and 85 steers weighing 680 lbs. brought $151/cwt for October delivery.
The industry has a lot of work to do earning market share back. This episode is an unexpected mess and we’ll just have to eat our way out of it…just like we’ve done in past oversupply situations. — PETE CROW
