Cattle processing has been stuck at 113,000 head a day, as of last week, and I wonder if that will be as good as it gets. Fifteen years ago, we had the packing capacity to process 750,000 head a week and I think the most we’ve seen in years is around 680,000 head.
Last week the average fed steer slaughter weight was 901 pounds. I realize that packers took the heavy cattle to the front of the line over the past few weeks. Frankly, I think they needed the fat for the ground beef market. We must remember that over half of the beef consumed in America is ground beef.
The 90 percent lean beef market has been trading over $300/cwt ever since this COVID-19 virus started. It hasn’t come down like the rest of the beef cutout values have. Even the 50 percent lean trimmings spent a few days over $300/cwt, then fell like a rock when the packers started killing those big cattle. Like I said, they needed the fat to make 80/20 ground beef. Ground beef is the foundation of the beef business, the tenderloins, loins and ribs are just added value.
As an industry, we’ve constantly been told that those big cattle are too large for the box. How big is a ribeye on a 900-lb. steer carcass? You could only put four in the box instead of the traditional six. We’re going to be stuck with big carcasses for a while.
If there are a million head of cattle backed up, like some folks say, it’s quite amazing to me that we can get cattle to grow to 1,400 lbs. in 14-16 months. Cow-calf guys have been selecting growth genetics for a long, long time. I would have to say we’ve got enough growth in today’s cattle.
Carcass weights are important, especially for the middle meats. Folks like a thick steak; they are harder to ruin. A rib steak with the cap removed cut an inch and a quarter is a huge steak, which half the population can’t finish—even I couldn’t finish a steak that big!
I can’t exactly remember the equation: Every average pound of gain in carcass weight equals 1,000 head, or something like that. But I was told last week that carcass weights are 31 pounds over the same week last year. That 31 pounds is equivalent to 20,215 head more cattle being processed. So, add 20,000 head more to last week’s slaughter of 588,000 head—which was 608,000.
Last week’s meat production data show the industry was 937,000 head short of last year’s pace and we produced 5 million fewer pounds of beef. These packers need to process big cattle just to catch up. But we’re leaving a lot of finished cattle behind. We would need to slaughter 36,000 more cattle per week to catch up by the end of the year and we should be processing 670,000 head a week from now until August.
We need some new packing plants that the big boys don’t operate. Who’s going to step up and build a new packing plant? How would a 2,000-head-per-day plant that bought all their cattle on the cash market work? Seems like there is a lot of money in it. We have a lot of state development funds around, and some states are building a 50-head-a-day plant. This might be asking too much.
Now we have the Department of Justice saying they will investigate the big four beef packers for price gouging in an antitrust investigation. It will be interesting what they come up with.
News flash: The poultry industry has just been indicted for price fixing. Several executives from Pilgrim’s Pride, a JBS-owned company, were indicted and several executives at Claxton Poultry Farms were caught conspiring to fix prices. Several poultry companies were bidding on a food service contract and conspired to hold the line on prices, even though several poultry companies filled the long-term order.
Now that the Justice Department has agreed to investigate the beef industry, this poultry price fixing case will add some fuel to the pricing outcry on beef. There are currently two cases in play accusing the big four of price gouging producers and food wholesalers.
We will certainly have some exciting times ahead of us in the cattle and beef industry. Many cattle producers are frustrated with the beef packing industry, as they have been for over 100 years, but it looks like they could get some answers as to why prices have been so erratic. Right now, it seems like uncertainty and supply and demand rule the roost in cattle and beef markets. — PETE CROW
