The spot boxed-beef market trade is primarily reported in two time frames: the short-term 0-21-day delivery, and longer term 22-day and up delivery. The latter (See chart) has seen 33% more volume in 2017 than a year ago, averaging 1,035 load per week. While the 0-21 day delivery load sales were a bit more numerous at 1,872 per week, those transactions only increased 2% over the period compared to 2016. All of this is without respect to formula and forward contract sales (over 50% of volume), so it gives us a snapshot of what buyers’ purchasing reactions have been in relation to short-term supply and price signals. As we have noted earlier this year, January and February presented excellent buying opportunities for wholesalers and other end users to book their beef needs for dates further out on the calendar.
Cutout values had retreated to levels below $1.90/lb. for much of that time with middle meats devalued greatly after the first of the year. The second chart (below) shows the relationship of the Choice cutout to those out-front negotiated trades. We can see how quickly buyers reacted, increasing purchases as price began to increase in mid-February, thus indicating that the seasonal low was already in place. The short-term increase in the sold-ahead position on the part of packers likely fueled spot market prices to move higher in March, in view of lower availability of product not already committed. That also may have driven the very large 613K fed-steer and heifer harvest last week. of Tuesday this week, the Choice spot market cutout had surged to $212/cwt. according to the daily Urner Barry report ($220/cwt. on USDA), 15% up from the January low. Analysts this week have kicked around the idea that perhaps the beef market has found a top and that end users may start to back away at these levels. That idea is bolstered by the fact that packers sold a large volume of product far out front during February. Subprimal pricing was too attractive at the historical seasonal low, begging buyers to take advantage. All of this leads to a certain level of confusion as to market direction. It may be helpful to keep a perspective of the past three years (chart), when beef prices were much higher than today. As well, the pork cutout currently rests at 92% of the prior 3-year average and Midwest chicken breasts are at 107% of the prior 3-year average. This compares to the Choice beef cutout at 88% and CAB cutout at 87% of their respective prior 3-year averages. That might be a bit of a simplified review, but beef remains competitively priced with other proteins today.
Market Update – for those who Target the Brand
The cattle market keeps marching to the same drum closing out the first quarter, as fed cattle supplies remain tight and packers must compete for them in the cash market. The void in market-ready cattle numbers appears most evident in eastern Nebraska and Iowa as shown by the much higher bids in that area, up to $8/cwt. above those in Texas. Last week’s Fed Cattle Exchange had just 3,928 head listed and 56% of those cattle sold, primarily Nebraska lots, at an average of $133/cwt., the highest priced lot at $136.50/cwt. The $131/cwt. 6-state average does not portray the significant premiums paid in the Nebraska/Iowa areas that are short on finished cattle. Total harvested head count for the week was 613K head, much larger than anticipated and up a whopping 25K head from the week before.
Carcass weights continue their seasonal decline with steers now 15 lb. lighter than a year ago. Steer weights were up 5 lb. in the last weekly data, not uncommon even when the trend is moving seasonally lower.
The monthly Cattle on Feed Report last Friday simply met expectations of industry analysts, so it should have no impact on market prices (See page 3). For February, cattle placed in feedlots with more than 1,000-head capacity were at 99% of a year ago while finished cattle marketed in February were at 104%. The total head count “on feed” on March 1st was 100% of a year ago.
Weekly spot boxed beef moved up yet again last week to bring cutout values within striking distance of a year ago at this time (See page 2). Comparisons to 2016 have the CAB® cutout at 94%, Choice at 96.8% and Select at 99%. CAB cutout values increased 13% since the first full week of February, just below the 2014 run-up of 16% for the same Feb-March period. Last week saw a 3.9% rise while the Choice increase was 1.8%. CAB chucks were the largest gainers, up $2.57/lb. The middle meats added just a bit more to their spring pricing pattern while demand for rounds was mixed to lower. Thin meats were priced a bit higher, in keeping with the pace of the total cutout.
Cattle on Feed: placements and marketings
With harvest-ready fed cattle supplies so tight now, it is hard to imagine that the 2016 cow herd was bigger than the year prior. Indeed, it was north of 3% larger on January 1st and we have seen a year-to-date fed cattle harvest in the range of 5% larger than in 2016. Fed cattle marketing head counts were quite brisk through the winter, following a November that was 117% of that month in 2015. The build in winter-finished cattle supply has been moved through the system more rapidly than the annual supply increase had set for the pace. Consequently, we near the seasonal precipice of switching the fed cattle harvest from yearlings to the larger supply of calf feds waiting in the wings. USDA data also depicts those much larger placements for November through January that will hit during the discounted summer futures months. The remaining unknown is the head count on feed in the 999-head-and-smaller-capacity feedyards, which has been evaluated by some as larger this season.