It’s the first week of May and the wheels haven’t fallen off the cattle markets. We’ve made it into grilling season and all signals are go. Beef sales reported by retailers were better than expected and packers are raising kill levels to match their out-front orders.
Live cattle trade was light in the early part of the week as packers were offering $120 and feeders were pricing cattle at $126—a couple dollars higher than a week ago. Futures markets were acting a bit stubborn as the April contract expired and June took over with a huge discount to prevailing cash prices at $123. The June live cattle contract is at $107, which had a $2 rally last Wednesday, creating a record basis for cattle feeders. Hedged feeders are in the driver’s seat.
We expect to see some change in the market very soon but how much change? The June live contract has offered no confidence that the industry can test these new supply levels. We are coming into the highest beef demand months of the year and folks seem eager to eat beef at a price, and I’m constantly amazed at the average all-fresh beef price levels of $5.60 per pound. Consumers are spending money on the product and coming back for more.
One thing has occurred since the low supply times of 2013 is that folks have discovered other cuts of beef. Steaks and hamburger have always been easy to sell. But they found skirt steak and short ribs and got reacquainted with the chuck. I was astonished to see skirt steak in the grocery store selling for over $10 a pound; 10 years go you could buy all you wanted for $1.99. Back in those days it was hard to find because retailers couldn’t sell much of the cut. Every new and popular cut of beef adds to the cutout and to the overall price of live cattle.
Slaughter is picking up fast. It was estimated that 640,000-645,000 head will be processed this week. We will process over 500,000 head of fed steers and heifers, the largest fed slaughter this year. We have heard of numerous fed trades at $118 to $121 on cattle for June delivery. Packers have every incentive to process cattle as they are currently earning over $120 a head. This is one of those rare moments when the industry increases production and the price keeps advancing. Choice boxes are trading at $227.46 while Select boxes are at $208.56. It’s the season when calf feds are ready for slaughter and it’s clear that Select beef is not what most consumers are demanding. If an $18 Choice-Select spread doesn’t get your attention on the kind of cattle or management system to utilize, I don’t know what will.
Some analysts continue to speculate about slaughter capacity and if that wall of cattle will be deferred due to our inability to convert them to beef.
Last week Cargill’s plant in Skyler, NE, had a bit of a labor dispute over the pay differentials between first- and second-shift employees. The plant was closed Tuesday and had to refuse to unload cattle. The problem was fixed within hours and everything is back to normal.
We have been seeing a lot of news about striking teachers and public employee unions in recent weeks and it almost appears to be an epidemic. We know that labor to operate packing plants is in short supply. With packer margins at historic levels I’m sure labor is looking at this trend and looking to leverage themselves into higher pay. The fact is labor is short in just about every industry, but we certainly don’t need to have labor disruptions in packing plants during our high beef production season.
Feeder cattle markets are still rallying too. The CME feeder cattle index was at $139.27 at mid-week, showing more strength, while the May feeder cattle are trading near par at $140.80; no clear direction here. But, there is a lot more optimism in the fall feeder cattle contracts with most trading in the $147 range. There might be an opportunity to protect summer grazing programs with a put option at these levels.
But then again summer grazing programs are already under stress. We haven’t seen many signs of grass fever yet. There seemed to be lots of light calves offered for sale on the video sales last week in the southern Plains. Many of those cattle should be grazing for several more months and marketed as 800-pound steers instead of 500-pound steers. Pray for more spring rain. — PETE CROW
