We’ve made it through the dog days of summer when live cattle markets reach their seasonal low point. Fed cattle trade last week looked to be stronger—few cattle traded, and some of the reported trades touched $130/cwt. It appears we will finally move to the next level.
Slaughter levels have been moderate the past several weeks. Now packers are preparing for the Labor Day run and trying to slaughter over 650,000 head, which should clear backlogs of cattle in feedyards. Boxed beef markets have been quite strong, treading around $350 for Choice beef, and Select beef trading $30 behind.
In a recent beef grading report, it showed 12.6 percent graded Prime—I don’t think I’ve ever seen this much Prime beef on the market, but better beef means better demand. Choice production was at 72.6 percent, and Select was just 10.2 percent. If there was any demand for Select, one would think there wouldn’t be a $30 price difference.
Year to date, total slaughter was up 4.1 percent, while beef production was also up just 4.2 percent. It is remarkable that we are producing more beef and selling it for more money—the sign of a growth industry. As we all know, the distribution of record-large consumer spending on beef hasn’t provided profits to all segments of the industry. But that is changing.
Futures markets are very optimistic about the fourth quarter of this year and the first quarter of 2022. The August contract will go off the board around $124.50, October is trading at $130.30, December at $136.27 and then we see the deferred months trade over $140.
That doesn’t mean cattle feeding will be profitable, with what cattle feeders are paying for feeder cattle and the price of all feedstuffs, especially corn. Dry distillers grains are trading at $140 or so in the Midwest ethanol plants, but that may change now that China has dropped their VAT tax and duties on the stuff.
With all the input prices going higher, consumers will need to get used to already record-high beef prices. The average Choice all-beef retail price was $7.53/lb., and ground beef was at $4.39/lb. It’s been an interesting spring and summer for beef featured at grocery stores. We had a few good rib and strip loin features early, but all summer long, a petite sirloin or London broil were the go-to items for our two major retailers.
Consumer demand hasn’t shown any signs of slowing down. The government has been handing out lots of money, with added benefits to the 40 million folks on the food stamp program and the $300 a month child tax credits. I can’t wait to see how the $3.5 trillion social handout goes. There will be plenty of money going around to keep beef at the center of the plate. Folks should also be getting back to work soon with unemployment bonuses coming to an end.
The beef export market has been setting new records each month, and you must remember most of these export items are cuts we generally don’t eat. Hide and offal have reached new highs, with the drop credit currently over $15. Last year it was just $7—this adds $210 to a 1,400-lb. steer.
It looks like calf and feeder cattle producers will be in the driver’s seat for a while. The feeder cattle futures show us the way into the future. All the deferred feeder cattle contracts are printing over $165 for as far as you can see. The only problem here is having the cattle to take advantage of higher prices.
Fire and drought conditions have made ranching in the West a challenge. The Southwest and West Coast have been in a prolonged drought, and fires have followed. California itself has burnt over 1.5 million acres, and the Dixie Fire is over 750,000 acres alone. Nationwide, we have over 2.5 million acres burnt. What a wasted resource.
Profit opportunities are before us—futures markets offer some insurance for that. Calves are going to be worth a lot over the next few years, and you need to make the most of it. Going forward, cow-calf producers should think of what programs their cattle will fit into and take advantage of the premiums available. I would also encourage raising yearlings out of your weaned calves. Post-weaning gain is where your genetic value is. Oh, and keep praying for rain. — PETE CROW
