Boxed beef markets have started trending downward now that retailers have filled their Labor Day needs. Beef features haven’t been robust most of this summer, but this past week was the first I’ve seen features for rib steaks and New York strips. It makes me wonder where all the loins are going, especially at these high prices.
Maybe wholesalers are starting to freeze them in anticipation of the holidays. Then again, cold storage reports would suggest that beef demand is still robust. It’s rare to see the beef cutout hit a record high in the middle of summer.
Fed cattle markets have been stubborn. I think everyone was expecting to see fed cattle trading for $130 across the board by now. Futures markets offer a bit of encouragement, then they drift lower, and cattle feeders let them go for lower money.
On Thursday morning, the live weighted average was $125.91, nearly $2 lower than the week prior. Dressed prices averaged $202.27, and two weeks ago, the dressed average was $205.52, down $3. Also, steer carcass weights are down 16 lbs. from a year ago, and we are producing slightly less Prime and Choice beef: 79.5 percent.
This suggests cattle feeders are more current, which should provide them some leverage.
The Cattle Reporthad an interesting perspective last week: “To some, it seems like bargaining power would never return to the hands of those holding fed cattle for sale. Each opportunity for optimism is dashed by packer power and control of insufficient kill slots. The signs of hope always seem to end in more frustration.
The cattle feeders in the Southern Plains especially feel a lack of control in determining their prices, and as of Thursday, almost no cash cattle had sold in Kansas. The week closed with light sales in the south at $123—a Pyrrhic victory.”
I realize we were coming into a short kill week, and packers don’t need as many cattle, but you would think we should be able to hold steady prices. Packers have had a tough time slaughtering over 650,000 head a week. But then again, packer margins were reported at $1,100 per head last week.
I’m starting to get the feeling $130 is an elusive number. Sometimes, I think that packers are content with sub-650,000 head slaughter weeks if they can maintain such good margins. They have always cut production when the cutout was threatening their margins.
Consistent labor is a big issue for the packing industry; it’s an ugly task they perform. Soon we will have some new packing plants come online, and I imagine they will have labor problems as well. It took CS packing in Kuna, ID, a good year to get up to full capacity.
Agri Beef will open a new plant soon in Jerome, ID. And we understand that Riverbend Ranches has broken ground on a medium-sized plant in Twin Falls, ID. Idaho is becoming a packing mecca.
I understand that Sustainable Beef packers have received some initial funding for their packing plant project in North Platte, NE. I’ve got a feeling they will pull this one off. But they will need more labor—which, for the packing industry, there isn’t an infinite supply. Two years from now we will know.
Beef byproduct values have risen dramatically over a year ago. Last year, hide and offal was trading at $7.81, and last week it was $15.10—a 43.5 percent gain over the five-year average. This adds around $220 to the value of a 1,450-lb. fed steer. It’s surprising what some of this stuff is worth. E
dible tallow reached $72.75/cwt, tongues are trading at $975/cwt, cheek meat gained $60/cwt to $270/cwt and tripe has risen $66/cwt to $136/cwt. Butt-branded hides were up 50.6 percent to $24.14/cwt. I’d say packers are doing well with the fifth quarter.
The drop is one element these smaller packing plants will need to embrace; perhaps they can put a brand on natural tripe or blue-ribbon organic tongues. One thing that will be vital is producing something different, something the big packers can’t or won’t do.
Producer leverage will return. There are fewer cattle in the North American beef system. Canada and Mexico have both been liquidating cow herds because of drought. And Mexico has developed a thriving beef processing industry.
The Cattle Report mentioned, “The trend line is also for more and more of Mexican cattle to be fed in Mexico. Moreover, Mexican beef processors are finding value in U.S. fed cattle, and south Texas and Arizona are reporting sales of fed cattle shipped to Mexico.” So, things are always changing. Meanwhile, pray for rain. — PETE CROW
