Cattle markets started to stumble a bit last week as forecast. Fed cattle were trading in a wide range from $114 to $120 live and $180 to $189 dressed, down $4-5 from the prior week. Futures markets were in a freefall for most of last week then rebounded on Thursday advancing $1.40 on the June live cattle contract, now at $103.15, with August at $99. New contract lows are in.
Two weeks ago, beef packers bought a record number of cattle. Cattle feeders sold over 169,000 head on the cash market for the week, at $122 live, but delivery times were far and wide as packers wanted to get ahead of the Memorial Day retail beef rally.
Retailers were aggressive in their beef features, as we are in the midst of the early summer grilling season. Many folks have been expecting a wall of cattle to develop, and the way the cash and futures markets have been behaving, one would think we’ve started that seasonal decline. I’ve said it before and I’ll say it again: A well-advertised wall of cattle always seems to dissipate. The market always has its way of working through them and reducing the damage to the market.
Consumer demand has been outstanding for beef. Retailers are maximizing their margins on sales and will continue to feature beef for a long time if they’re making money on it. Packers are drawing record profits on beef. Hedgers Edge showed that they were earning $182 per head last week, and they tend to be conservative on their packer margin numbers. The beef cutout values looked as if they peaked early last week but by mid-week added value with Choice trading at $232.40. The Choice/Select spread is as wide as it has ever been at nearly a $24 difference in value.
We were debating last week whether the futures would move to cash or if cash would move to the futures market to establish convergence when the contract expires. The futures markets have no confidence that beef demand will support the market going forward; we’re still debating that since cash and futures were both down.
Cassie Fish at Consolidated Beef Producers said that for the week ending May 5 fed slaughter was 523,789 head, the largest slaughter for that week since 2011. “This is very good news for cattle feeders, as it is proof packers have taken measures to increase slaughter beyond last year. The incentives are powerful, plentiful supply, record (and widening) profit margins and fantastic global beef demand.
“Still with the limitations that come with a modern-day work force, there has been endless speculation over what is a practical top for the fed kill is in 2018. Most industry insiders don’t expect weekly fed kills to top 530,000 to 535,000 head. June historically sees the largest fed kills of any month and this year shouldn’t be any different. It’s a good thing too, because the placed-against data indicates the industry will need multiple consecutive large fed kills to keep the industry from becoming uncurrent.”
However, the boys at Hedgers Edge said, “Front-end fed cattle supplies will continue to build at an accelerating rate going forward. The carryout from May versus last May will approach an increase of 700,000 head. Carcass weights should score a seasonal low by the end of next week. Beef and meat demand is expected to remain solid, led by rising employment and wages. Exports remain positive. Look for choppy trade to continue, with limited upside potential at this time.”
Early forecasts for the May 1 Cattle on Feed report are coming in and expectations for May cattle placed into feedlots will be down 10 percent from a year ago. April had placements down 9.3 percent from a year earlier. Marketings are expected to be 5 percent above a year ago and cattle on feed is 3 percent above a year-ago level. This should give some strength to the fall market for fed cattle.”
Beef demand is extremely good, and exports are up 11 percent so far this year. There is some positive news on the market and that is consumers want beef. Demand should carry us through this summer market in better shape than many—especially futures traders—think. The distribution of consumers’ beef dollars needs to be reallocated. Packers are and have been making too much money on fed cattle and more dollars need to go to the producers. — PETE CROW
