February adjustments in cattle and beef prices and margins

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After the wild January ride, cattle and beef markets are settling into somewhat more stable and realistic levels moving forward.  A barrage of winter storms has affected consumption and distribution of beef as well as feedlot production. For the year to date, beef production is down 8.6 percent with cattle slaughter down 9 percent.  As a result, margins continue to adjust with relative winners and losers among the various beef industry sectors.  Wholesale boxed beef cutout had the wildest ride with Choice cutout spiking up to $240/cwt., up 20 percent from the beginning of the year, and retreating to current levels under $208/cwt.  Packers benefitted only partially from the short-lived price increase because the values represented a limited spot market for wholesale beef and many packers had a significant portion of their beef production forward priced at lower values.  The concurrent increase in fed cattle prices has squeezed packer margins because the higher fed prices are being paid on all cattle but only a portion of the boxed beef was sold at the high spot prices.  Subsequently packer margins have been further squeezed as boxed beef prices have fallen more than fed cattle prices.

The relative winner in all this is the fed cattle market, where prices have retained more than half of the January gains.  Fed prices were about $135/cwt. the first week of January and have dropped to current levels of $142/cwt. after peaking at $150/cwt. about three weeks ago.  Feedlots are very current at this time as the combination of high prices and winter weather have conspired to pull cattle forward and limit slaughter-ready supplies.  Feedlot breakevens are at current market price levels or higher in many cases so the current situation may be one of limiting losses more than profitability but it is still well above earlier expectations for the market at this time. A series of winter storms continues to pummel the northern half of the country and winter weather impacts on fed cattle performance will continue for some time.

Feeder cattle markets did not, for the most part, participate in the January market roller coaster as feeder prices were already at high levels.  However, the increase in fed cattle prices has made those feeder price levels more sustainable.  Feeder cattle markets have been relatively quiet the past couple of weeks, staying mostly hunkered down through the severe weather that affected much of the country.  However, feeder markets reawakened this past week with higher prices noted in many markets, though somewhat less in the Southern Plains.  Replacement heifer demand continues strong in a growing part of the country.  Cull cow and bull markets are strengthening seasonally with reduced supplies and strong hamburger markets.  Breaking and Boning cows are pushing $100/cwt. in many locations with slaughter bulls bringing $110-120/cwt. 

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