What’s behind the jump in boxed-beef prices?

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Wholesale beef prices have been on quite a run over the last two weeks. After moving about $5 higher last week, beef cutout prices continued to strengthen through Thursday this week. The Choice cutout on Thursday averaged $196.90 per hundredweight, up more than $10 from $186.16 a week earlier. The Select cutout price, at $195.09 per hundredweight on Thursday, was up from $185.76 a week earlier

Several times during 2012 the Choice cutout price flirted with the $200 mark, but each time pulled back from that record level. This week or next, we could reach that $200 milestone for the first time. Oklahoma State University Extension livestock marketing specialist Darrell Peel, PhD, says the market likely will stabilize and could pull back somewhat in the coming days or weeks, but the overall trend will be toward higher cutout values. He’ll be watching closely to see if the Choice cutout can finally break the $200 barrier. If so, he believes we could see a higher trading range established that would improve packer and feeder margins over the longer term.

Several factors have played a role in the run-up in beef prices.

First is the overall trend toward smaller supplies of finished cattle. Feedyard inventories listed in the USDA Cattle on Feed report have shown year-over-year declines for six consecutive months, dating back to September 2012. The most recent report showed cattle on feed as of February 1 down 6 percent from a year earlier. Those shorter placements have begun to affect supplies of market-ready cattle, and will continue to do so in the coming months.

Peel says he has been expecting beef prices to move higher based on those supply trends and seasonal patterns. However he says the sudden increase over such a short period is somewhat unexpected.

Part of the reason, he suspects, is the role of weather in the beef-supply picture. Two major winter storms affected much of cattle-feeding country during the last two weeks of February, hampering movement of cattle from feedyards to packers. Weekly federally inspected slaughter for the week ending March 1, at 563,000 head, was down from 573,000 the previous week and 620,000 during the same week in 2012.

So, Peel says, the increase we’ve seen over the past two weeks is supported by market fundamentals and should be sustainable, but the winter storms helped drive a more rapid rise in prices than would have occurred otherwise.

There has been some discussion in the industry that the USDA’s plans to furlough meat inspectors on a rolling basis later this year could be playing a role in the current beef market, motivating buyers who expect supply disruptions later. Peel says the anticipated furloughs might have some effect on cattle futures, but he does not think the issue currently affects cash prices for cattle or beef. He says supply fundamentals, with a little help from winter weather, have brought wholesale beef prices to about where they should be.

 

 



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