It’s been a quiet week in the cattle markets so far this week. Packers have been aggressive cash buyers for the past three weeks, with 90,000 plus head purchases. Seasonally, we should be in the thick of high-volume beef sales and the beef cutout should reach its seasonal high.
The Choice cutout finally moved off last week’s low, gaining $12-13 printing at $306.00. Packers have been very cautious about production and there was talk of closing some days and reducing hours at fed beef plants. Packers are losing around $100 per head at this point and are reporting large first-quarter losses.
There was a little fed trade at mid-week at $184 in Kansas and $187 in Nebraska. Most market analysts are expecting to see steady to higher trade. June live cattle futures showed a $10 basis to the cash market, which should allow hedged feeders to sell more fed cattle, or as many as packers want to kill.
The irony is that they produced more beef and sold it for more money. We’re producing twice the amount of Prime beef compared to five years ago, which is the high-value stuff that typically appeals to a smaller but more affluent market. As a matter of fact, we are producing as much Prime as we are Select beef. Feeders are simply adding more weight to their existing cattle rather than buying expensive replacements. Cattle feeders are adding additional weight at $1.07 a pound and keeping them for up to 200 days on feed.
The boys at HedgersEdge.com said the previous week, “The harvest level last week was reported at 622,000 head, unchanged from the prior week and 22,000 below the same week a year ago. The cattle harvest YTD is already 527,000 below year-ago levels. The reduction is approximately 50% fed cattle, while the balance is reduced cow harvest. The steer and heifer carcass weights are 30 and 24 pounds above year-ago levels, respectively. Average carcass weights (inclusive of cows) are 32 pounds above the prior year. (This actual weight data is for the week ending 4/27/24). For the most recent reporting week, the increase in average carcass weights is equivalent to adding approximately 24,000 (head) to the weekly harvest.
“Seasonally, carcass weights should trend lower into the late May/early June period. The combination of reduced total harvest levels (down 4.4% YTD) and higher carcass weights results in total beef production being down only 2.1% YTD. Although time is quickly running out, the seasonal trend still favors an advance in the beef cutout. Better get going.”
Now, we enter that part of the beef cycle where beef plants will start closing. The folks who publish the Cattle Report pointed out, “President Joe Biden took office vowing to improve the competition in the meat processing arena for all beef producers. He immediately began a series of grants, offering funds and low-interest rate loans to small, underserved, and unrepresented minorities of women and people of color. Small beef processing facilities across the country were expanded and a few were reopened.
“Those were days of Covid, and beef processing margins were record high, with some reaching close to $1,000/head. The continuing decline in the nation’s cattle herd soon brought a halt to the world of excess profits and created a new and currently existing struggle for those in the beef processing business to turn a profit. Even the largest and most efficient plants have been mired in red ink for months, with no letup in sight.
“Inevitably, the government largesse, which was misdirected in the first place, has created economic harm to the recipients of the grants it intended to help. The smallest facilities frequently have slaughter costs—double or triple the cost of slaughtering an animal at a large beef plant. If the big plants are losing $100/head, the smaller facilities are losing $300/head, and no letup is in sight. Many of these small operations are now up for sale and face little prospect of finding a buyer.
“Closing the least efficient facilities is the pathway for restoring financial health to more efficient operations. The question is always how deep you have to cut. The large plants are owned by only four companies, and none will want to give up the market share they would lose by closing a plant.”
We’ve seen this drama before and we all know change is constant. We can adjust to business changes. We can’t change Mother Nature, but we can pray for more spring rain in the west. — PETE CROW
