It’s looking like a couple new beef processing proposals are getting a lot of attention. This fall, we will start seeing a declining calf crop. Next fall will more than likely be more dramatic. Beef packers have been maintaining good margins, but it appears that will change soon. The beef cutout has fallen while fed cattle have been selling for more. The run-up to Labor Day rallied fed beef prices, but now that big beef holiday is fulfilled, and prices are starting to be under pressure.
Holidays produce a lot of beef sales, and packers know when they need the inventory and when they need fewer fed cattle. Fed cattle are contracted accordingly, and then they fill in their needs on the cash market. This helps set the price for many formula-traded cattle.
Tyson already has a plant in Amarillo, TX, and recently announced a $200 million upgrade to the plant. They process 3,000 head per day and have a customer base. Now there is going to be a new kid on the block called Producer Owned Beef, which intends to process 3,000 head per day.
Texas was left with a void in packing capacity when Cargill closed the Plainview, TX, plant, which processed 4,000 head per day. At the time, Cargill decided they had too much capacity for the fed cattle numbers available after the last major drought. This literally had cattle feeders running to secure shackle space.
In the run-up to Labor Day beef demand, the packing industry collectively processed 678,000 head about two weeks ago, one of the largest slaughter volumes of the year. This is after the COVID pandemic had pretty much run its course and caused labor problems. Packers were back up to 125,000 head a day and processing on Saturdays to fill in the gap. Remember, these packers have a really good idea when their customers want which type of product.
For instance, this week at Denver Safeway stores, T-bone steaks were featured at $4.89 a pound. Kroger stores had rib-eyes priced at $5.79/lb. Labor Day always produces good beef demand. Then the Christmas and New Year holidays will produce lots of demand for the middle meats. Packers and wholesalers will start hoarding those cuts in early November.
The big news last week was that Walmart announced they would invest in a minority stake in Sustainable Beef in North Platte, NE. The press release says, “Walmart’s equity investment is part of a broader strategic partnership to source top quality Angus beef from Sustainable Beef’s new processing facility. This partnership helps supplement the current beef industry and provides additional opportunities for ranchers to increase their business.”
What I’m reading here is Walmart wants products that are sustainable, have as many natural attributes as possible and are high quality and environmentally friendly. “Sustainability” is becoming such a social buzzword that it is getting hard to define. And I guess I’d say not to fight the consumer, roll with them, because things will change.
The meatcase is the heart of any grocery chain, and retailers have been enjoying fantastic margins. I found skirt steak at Safeway stores last week priced at $13.99/lb.; it may have been marinated. Did retailers figure out how to sell beef over the last three years, or have consumers discovered there is more than middle meats and hamburger? Beef demand has been fantastic, but the price distribution is still lopsided.
Walmart and 44 Farms teamed up several years ago and now sell high-quality beef in the southeast part of the U.S. under the Prime Pursuits program, labeled as McClaren Farms. It would be very easy for Walmart to set up a similar situation with Sustainable Beef and Angus breeders in Nebraska. It will be an interesting situation over the next two years. It appears that a lot of new packing capacity will come online, and packers will have to compete for fed cattle and Choice or better fed cattle. With corn prices where they are at, feeding many of these cattle over 200 days is an expensive proposition.
We know now that quality sells, which took this industry 25 years to learn. Walmart knows it and is methodically building a better beef program. But remember Walmart’s old mantra: “We sell for less.” We don’t want to go down that road. — PETE CROW
