The latest Cattle on Feed report was uneventful. All points were about where they were expected to be. Placements were a bit higher than expected. Therefore, futures continued to drift lower. It’s frustrating that market-ready fed cattle numbers were forecast to be lower coming into October.
Fed cattle last week were trading between $122-125 most of the week. A total of 69,000 head of negotiated cash cattle traded through Thursday morning—this was one of the better cash trading weeks in a while. Dressed fed cash trade was $188-197; the weighted average was $195.61 through most of the Northern Plains.
Trade was consistent between northern and southern feedlots. Wednesday, Sept. 22, a total of 35,400 head weighing 882 lbs. were priced on the formula and averaged $204.68. With these numbers, the formula pricing is much more attractive, and I can’t blame anybody for trading that way.
Still, our problem is price distribution along the supply chain. Remember that everything starts with the consumer, and they have been spending lots of money on beef. Retailer, packer, feeder, backgrounder and cow-calf producer. And if you think about it, the longest period of ownership is about six months, give or take a month. The production side must deal with Mother Nature—the processing and marketing side don’t. They have the product for four to six weeks.
Since we’ve been talking about alternative marketing agreements, what would you think of mandating margins to each segment using a consumer beef dollar index? Everyone gets a positive piece of the pie. But how would a system like that be administered? Doesn’t sound feasible, does it? It’s about as feasible as the 50/14 legislation being proposed.
Supply/demand principals are the only way to measure and respond to markets in real time. We are walking into a period where there will be fewer cattle numbers, and higher prices will be a reality. It’s the cattle cycle, and Mother Nature controls production.
The boys at HedgersEdge in their last cattle situation outlook report said, “The drawdown in front end fed cattle supplies is making progress, albeit, at a slower pace than previously projected. Labor issues continue to limit weekly harvest capacity. On the bright side, this category of cattle supplies projects to decline into the new year. The decline from Sept. 1 to January is estimated at 333,000 head. This approximates the previous five-year average. Since 2002, only three years, 2008, 2009 and 2016, recorded third quarter average prices higher than the following year’s first quarter.
“Despite the lack of positive price response to-date, the cash trend bias remains up. Promoting this bias is the combination of declining front-end cattle supplies into the new year, coupled with carcass weights below the previous year’s levels. The resulting decline in beef production should allow fed cattle prices to attain a $128-130 level basis in the Southern Plains prior to year-end. The greatest price risk to cash cattle going forward is shifting from supply risk to demand risk, as consumers react to the sharply higher retail beef prices, set to reflect the recent surge in cutout values.”
August Choice beef averaged $7.64—a record high. July averaged $7.53. Broilers averaged $2.15 in August. It’s remarkable that consumers are willing to spend as much as they do on beef while other proteins are much less expensive.
The boys at HedgersEdge point out, “Rising incomes have supported consumer demand for beef, as well as the competing meats. Can this continue? Although inflation has risen throughout the pandemic, wages have also been increasing. Even after adjusting for inflation, wages are seen above pre-pandemic levels for nonsupervisory workers. This shows that while inflation is a force with which to be reckoned, so too is the upward pressure on worker pay.”
Getting weekly harvest levels to exceed 650,000 head is critical for this industry to maintain currentness in the fed cattle sector, and it will also help maintain consumer demand. Packers are in a unique position, keeping their supply lines healthy and keeping consumer demand strong. Pray for moisture. — PETE CROW
