click image to zoom Live cattle futures surged higher on Tuesday as market participants were buoyed by reports of higher wholesale beef prices. The choice beef cutout was quoted on Tuesday afternoon at $185.70/cwt, about $2.6 higher than what it was on Friday and $15.9/cwt (+9%) higher than a year ago. The select cutout closed at $180.10/cwt, $12.8 (+8%) higher than a year ago. The gains in wholesale beef prices have been broadbased as packers have sharply reduced kills in recent days. Steer and heifer slaughter (feedlot cattle) is currently running at a weekly pace of about 468k, about 7% below year ago levels. Packers have been working reduced hours on Fridays and Saturdays for the last three weeks and the result is showing up in the boxed beef market as retailers and foodservice operators looking for spot loads are now forced to pay higher money.
For the most part all primals are showing strong gains compared to a year ago (see our discussion on 2/3 for more context on individual cuts). The only laggard is the chuck primal cutout, which is up just 2% from a year ago. However keep in mind that chuck prices last year were leading the pack due to very strong demand from S. Korea and current chuck prices are still at near all time record highs. The biggest primal cutout gains compared to a year ago have been for flanks (+36%), short plate (+23%) and loin (+16%). Also supportive to the overall gains for the choice and select cutout has been a very buoyant market for beef trimmings. It is the second week of February and the price of 50CL beef trim stands at $100/cwt compared to last February when 50CL trim was hovering in the mid 70s. Ground beef demand from both retail and foodservice establishments remains strong and this has pushed the price for fat trim to all time record levels for this time of year. And if end users are willing to pay $100 for 50CL in mid February, what will happen to this market when April rolls around and everybody starts to gear up for Memorial Day weekend and the start of the grilling season? Mild temperatures this winter have clearly benefited this market but we also think that the escalation in the price of high value cuts will continue to push more end users down the value chain, bidding up prices. In this context, it is also important to keep an eye on the lean part of the complex. Cow meat has often been counted on to provide a sufficient supply of lean beef that is blended with 50CL trim. USDA quoted 90CL beef trim at $207/cwt on Tuesday, compared to about $198 a year ago. US cow slaughter has been trending lower since early January and the expectation is for cow numbers to be tight this spring and summer given record high calf prices. Considering the potential for record 50CL and 90CL this spring, the 2012 grilling season is shaping up as the most expensive one yet for beef eaters. Cauliflower anyone?