Cattle markets were struggling to hold on to fed cattle gains; the prevailing price was $157/cwt the first few days of December, and this last week, it looks like $155/cwt. It’s hard to figure out if feeders are making any money on their cattle trades. The cost of gain is hovering around $1.50 a pound, and corn is still hanging in the $6.50/bushel trade zone, and it doesn’t look like lower feed costs will happen anytime soon. Last time I looked, ethanol producers were using about the same amount of corn as the feed industry does. There goes that green economy thing.
In early December, boxed beef prices hit the lowest point of the year at $252. Packers have been processing around 660,000 head per week for quite some time. The rib buying season is almost over since Christmas is about two weeks away; chucks and rounds have been dragging the cutout down. Winter months are generally a slower time for beef sales, but large processing speeds are driving the cutout lower, and they have already put packers in the red—they are losing money right now. Perhaps this is a more predictable long-term trend than we remember.
Retailers are holding on to big margins at this point, and the spread between wholesale and retail beef should be remarkably wide. I’m sure those Christmas prime ribs will cost a pretty penny.
I took a look at the difference between grading and the price of various prime ribs. The comprehensive cutout value for Prime beef was recently $317, and the Prime wholesale rib price was $765. The Choice cutout was at $253, while the rib was at $496. The Select cutout was $226, and the Select rib was $378. There is a lot of price difference between grades of beef—nearly $60 between Prime and Choice and $90 between Prime and Select. This is supply and demand at its best. The latest grading report showed that on a weekly slaughter basis, the industry is producing 8.8% Prime, 73.3% Choice, 15% Select and 3% utility beef.
Even though the market has been moving higher, it’s pretty much the holiday rib run creating the momentum. We’re not quite there—the heavy front-end supplies of fed cattle are getting smaller, but we have had large beef production to keep beef values in check.
The folks at HedgersEdge.com said, “Just as the darkest days of winter will soon pass and more hours of daylight will occur, so too the period of record high front-end fed cattle supplies is disappearing in the rearview mirror. Front-end fed cattle supplies (150+ days on feed) are in the early stages of trending below the previous year. By April, this supply will also dive below the previous five-year average. These trends should prevail through 2024, provided estimated marketing levels are met.”
Over the past three years, we’ve seen the nation’s cow herd decline. Beef cow slaughter levels have been 12-13% higher than the prior year for the past three years. The next Cattle Inventory report is due out Jan. 31, 2023, and will show the cow herd down 4 million head since this drought started three years ago. The replacement heifer situation generally adds 4.5 million head to the beef cow herd, and it is estimated that 1.5 million heifers didn’t make it into the breeding herd, so we should have a net loss of 1 million head of beef cows. Fed heifer slaughter is up 5% from a year ago too.
The packing industry has produced 28.3 billion lbs. of beef during 2022—a record—and it is due to cull cow slaughter from drought. It has been estimated that the January inventory report will be somewhere around 29 million head—not quite as low as 2014, but getting close. In 2013, the cow herd was liquidated to a 60-year low, and 2022 will represent the largest slaughter since 1984.
So, the market had a nice move due to Christmas demand. There are still plenty of front-end supplies of fed cattle, but not many. The cow herd has liquidated to the point that we should start to see prices advance to 2014 levels. Packing plant capacity won’t be much of an industry issue until the next cattle cycle starts building. Meanwhile, pray for more rain at the right time. We understand friends in California are getting some. — PETE CROW
