BOXED beef cutouts surged the week before last but the Choice cutout then crashed last Wednesday. The volatility reflects the fact that fed beef packers are over-producing despite the fact that total beef production the week before last was down 3.0% from the prior week and down 6.0% from the same week last year. The comprehensive cutout (cuts, grinds and trim) the week before last averaged $398.80 per cwt, up $8.14 per cwt from the prior week. The Choice cutout averaged $394.89 per cwt, up $6.73 per cwt.
The daily Choice cutout was at $399.91 per cwt last Tuesday after surpassing $400 per cwt the previous Thursday and Friday. But it plummeted by $10.06 per cwt the next two days to settle at $389.85 per cwt Thursday. The Select cutout declined by much less, which led to it going premium, a rarity, to the Choice cutout on Wednesday by $3.80 per cwt and on Thursday by $1.81 per cwt.
There were multiple reports that the slow volume in the beef trade and sluggish sales, both on a current basis and on forward sales, are beginning to back up supplies at production sites, says Bob Wilson, HedgersEdge.com. This situation is serious enough that it may have impacted production schedules last week, with no place left to put what was processed. Most sellers of product have larger than normal push lists for now, he says. Even with a production level at only 503,000 head the week before last, the Choice cutout value last Tuesday was lower than the previous Tuesday. His projection for the harvest level for the week was 512,000-515,000 head. Packer margins remain positive, although they narrowed from the triple-digit level seen earlier to approximately $29 per head last Thursday. Outside market influences are carrying more weight with traders than any fundamental reports, he says. The March Cattle on Feed report provided the most recent example of this, as the futures markets has posted gains this week in the light of analytically negative data, he says.
Cash Live Cattle Prices Stabilize
Cash live cattle prices stabilized the week before last after a three-week decline. The 5-area prices averaged $235.08 per cwt live or $372.15 dressed. These were up $0.25 per cwt and $0.11 per cwt, respectively, from the prior week. The cash trade through last Wednesday was light, with only 1138 head reported sold. Thursday saw a more active trade up north, with prices a weak-steady with the prior week. Meanwhile, fed cattle graded a record high percentage of Prime and Choice for the fourth week in a row. For the week ended March 14, cattle graded 14.65% Prime and 73.45% Choice. The total of 88.10% exceeded the prior week’s record of 88.03%. This continues to narrow the price spread between Prime and other beef. The comprehensive cutout report the week before last showed that Prime beef averaged $408.19 per cwt, while branded beef averaged $404.14 per cwt and Choice beef averaged $394.89 per cwt.
Carcass weights began the year at new record highs for all three categories. They declined after that but steer and heifer weights put in new all-time highs in the latest reported week. Steer weights in the week ended March 14 averaged 989 lbs, equaling the record set in the week ended January 3 this year. They were up 42 lbs on the same week last year. Heifer weights averaged 903 lbs, up from the previous record set the week before and up 32 lbs from the same week last year. Overall weights averaged 904 lbs, 1 lb shy of the record set the week ended January 3. They were 33 lbs above the same week last year and were the equivalent of adding 19,950 head to that week’s slaughter total of 526,525 head, says HedgersEdge.com.
STORIES CONTRAST CONSUMER BEEF SALES
CONSUMER beef sales in the foodservice sector cover an extreme price and quality range, from fast food burgers to porterhouse steaks costing more than $100 each. Ironically, the burger business is under pressure while some venerable steakhouses are thriving, as noted in two recent stories in the Wall Street Journal (WSJ). Profits at the nation’s biggest burger chains are under pressure but they are serving up discounts anyway, says the WSJ. In contrast, Delmonico’s, the New York restaurant that calls itself the first fine dining spot in the U.S., is poised to open its second outpost in Midtown Manhattan next year, says the WSJ.
Fast-food brands have been struggling with the surging cost of ground beef, which federal data shows is up by 48% over the past 12 months at the wholesale level for the industry’s typical ground variety, says the WSJ. Yet, when Americans are eating out, more people are now purchasing more items with deals attached to them than at any time in more than 50 years, according to market research firm Circana. The combo of more discounts with higher costs threatens to pressure fast-food margins even more. Last year, Burger King’s average profitability per U.S. restaurant fell about 10%, while Jack in the Box last month said that beef costs and softer sales have dented franchisees’ profits.
The days of spending $15-plus on a burger meal are past for us when there are better options, Josh Fulps, who works in wealth management in Vancouver, Wash., told the WSJ. Fulps, 28, said when he goes for fast food, he religiously scouts the McDonald’s app for discounts or goes for Wendy’s Biggie Bag value meals. Traffic to fast food chains began to fall in 2024, prompting McDonald’s, Taco Bell, Burger King and other companies to dish out more deals, says the WSJ. U.S. burger chains last year hit consumers with roughly 3000 promotions, nearly triple 2019’s total, according to market research firm Technomic.
McDonald’s Offer $3 And Less Menu
This year they’re going further, with McDonald’s next month offering deals such as a new $3 and less menu, says the WSJ. This includes a McDouble or fries or hash browns, according to people familiar with the plan. The new deals represent the fourth nationwide update to the chain’s value offerings in around 21 months. We’re going to do what it takes to deliver for consumers and do that in a way that’s profitable for our business, McDonald’s Chief Financial Officer Ian Borden said in a February interview.
Fast-food restaurants reported overall profit margins of 4% last year as costs rose, particularly for labor, according to the National Restaurant Assn. In 2016, the trade group estimated fast food margins at 6.6%. Jim Lewis, a McDonald’s franchisee for 32 years until retiring in 2019, said Golden Arches operators will likely manage all right, given their high volume of sales. But he said the discount wars will add to other chains’ profitability challenges. The winner is doing fine but the burger category is in some stress, he told the WSJ.
Burger King is sticking with its current value options of $5 for two items or $7 for three in an effort to provide flexibility across burgers, sides and desserts, a spokeswoman told the WSJ. We’re confident in the results we’ve seen and the role they’re playing in our menu, she said. New marketing, store remodels and other efforts were helping franchisee profitability in a challenging environment, the company said. Jack in the Box Chief Customer and Digital Officer Ryan Ostrom said the brand was introducing new offers at the right time, not just when the other guys do. Wendy’s and Jack in the Box both said they were committed to protecting franchisees’ profitability through technology investments and initiatives to help owners operate more efficiently.
To work, discounting needs to attract more customers while keeping restaurant operators in the black, said Greg Creed, a former chief executive of KFC and Taco Bell owner Yum Brands. The future of the brand depends on the financial success of the franchisees, not the financial health of the franchiser, he said. Bargain offers have helped chains slow traffic losses, although the most cash-strapped consumers have yet to fully return, according to market research firm Revenue Management Solutions. Declines in fast food traffic gradually improved last year, and visits in December were higher than in the same period a year earlier, said Technomic.
Burger Chains Lead Fast Food Industry
Burger chains still lead the U.S. fast food industry, says the WSJ. They generate twice as much in overall sales as second-ranked fried chicken chains, according to Technomic. But chicken, coffee and Mexican chains are all growing faster. Since 2019, the number of burger restaurants in the U.S. has declined by around 6%, according to Datassential. Wendy’s and Jack in the Box are closing hundreds of locations between them.
Burger executives say that even at lower prices, buy-one-get-one and $5 meal deals can generate a profit for companies and the franchisees who typically run the bulk of U.S. chain restaurant locations, says the WSJ. Lewis, the former McDonald’s franchisee, helped rally franchisees behind a dollar menu at McDonald’s in the early 2000s when sales were weak. He said traffic picked up and so did profit. You can tolerate a lot of pain if you get the sales, he said.
Delmonico’s Is At Opposite End
In stark contrast, Delmonico’s stands at the opposite end of the restaurant spectrum. When Delmonico’s first opened around the corner from Wall Street in 1837, it coincided with a financial panic, bank failures and the popping of a real-estate bubble, says the WSJ. But the steakhouse survived. In the coming years, it would serve famous customers such as Abraham Lincoln and Mark Twain.
Americans still have a strong appetite for steak and are shrugging off soaring beef prices, says the WSJ. Thinning cattle herds and tariffs on some imported meat have squeezed restaurant profit margins and forced operators across the U.S. to raise prices. But steakhouses may have received a boost from Health and Human Services Secretary Robert F. Kennedy Jr., who has highlighted beef as a key way to meet new federal dietary guidelines recommending increased protein intake.
Sales at U.S. steak-chain restaurants grew more than 5% last year, according to market research firm Technomic, more than double the growth across all full service chain restaurants. That growth rate was faster than any other full-service restaurant category in the U.S., except for Asian dining, according to Technomic. If anything, consumers seem to want more protein, not less, and that includes red meat, Sara Senatore, senior restaurants analyst with Bank of America, told the WSJ.
Casual dining such as at the Texas Roadhouse and LongHorn Steakhouse chains have powered much of steak’s sales growth over the past two years, according to Technomic. Sales from more upscale brands such as Fleming’s Prime Steakhouse & Wine Bar and the Capital Grille have also grown, although at a slower pace. But having steak frites on the menu remains one of the safest bets for New York restaurants, in part because diners are more likely to order alcohol to accompany a red-meat meal, said Keith Durst, owner of the hospitality advisory firm Friend of Chef. Durst advised steakhouse Golden Steer on its recently opened New York location, its first outside Las Vegas. New York just keeps bringing in more people who can spend and he hasn’t seen any drop in desire for steak at all. said Durst said.
Delmonico’s guests over the years included Charles Dickens, Marilyn Monroe and Elvis Presley. The restaurant has cycled through several locations and ownership changes but it has been located for most of its history in the heart of New York City’s financial district. Today, Delmonico’s core customers are business executives and their expense accounts, said Dennis Turcinovic, owner of Delmonico’s Hospitality Group. A 36-ounce porterhouse steak for two rings up at $210. At lunchtime on a recent weekday, businesspeople in suits sat at white tablecloth tables in the main dining room, where the walls are wrapped in cherry-wood wainscoting and heavy blue curtains frame the windows. Its new location in midtown, at 1330 Avenue of the Americas, is surrounded by a high concentration of Fortune 500 companies and will include more private rooms for business dinners and holiday parties. The restaurant on Beaver Street, which Turcinovic renovated and reopened in 2023 after a years-long closure, is steeped in its own history. Proclamations from mayors, decades-old menus and black-and-white photos from the restaurant’s earlier days hang on the walls and in glass cabinets.
COF TOTAL IS CLOSE TO LAST YEAR
THE monthly Cattle on Feed (COF) total remains very close to a year ago because of higher placements and lower marketings. USDA’s latest report showed a March 1 COF total of 11.549M head, which was 99.9% of a year ago. The total was only 28,000 head lower than a year ago and the lowest total for the date since 2017. February placements totaled 1.611M head, 103.7% of last year, while February marketings totaled 1.522M head, 93.2% of last year.
The only surprise in the report was that February placements were 2.0% higher than analysts’ average forecast and were up 57,000 head from last year. The average of analysts’ expectations was for a decline of 15,000 head. Placements as reported were 134,000 below the five-year average. February marketings were the second lowest February marketings on record and were 223,000 head below the five-year average. The 13.2% marketing rate in February was a record low for February and was the third lowest level for any month, says Bob Wilson, HedgersEdge.com. The five-year average marketing rate during February is 14.6%. This equated to a marketing shortfall of 158,000 head this year, he says.
Six states, Idaho up 4%, Iowa up 1%, Kansas up 1%, Nebraska up 3%, South Dakota up 4% and Washington up 6%, had more cattle on feed than a year ago. Nebraska had the most cattle on feed with 2.670M head, with its total up 80,000 head from a year ago. Texas was second with 2.530M head, down 110,000 head, and Kansas was third with 2.350M head, up 30,000 head. Only Colorado (down 8%) and Nebraska (down 7%) placed fewer cattle in February than a year earlier. Arizona placed 41% more and Idaho, Iowa, Kansas, Oklahoma and Washington each placed 11% more. Only Idaho (11% more) and Washington (14% more) marketed more cattle in February than a year earlier.
Regarding placement weights, all but one category saw year-on-year increases. The under 600 lb category saw 10,000 more cattle placed than last year (305,000 head). The 600-699 lb category saw 5000 more cattle placed (280,000 head). The 700-799 lb category saw 25,000 more cattle placed (445,000 head). The 800-899 lb category saw 12,000 more cattle placed (396,000 head). The 900-999 lb category saw the same number of cattle placed (135000 head) and the 1000 lbs plus category saw 5000 more cattle placed (55,000 head).
Front-End Will Remain Through Third Quarter
Front-end fed cattle supplies will likely remain above the prior year levels through the third quarter, says Wilson. The projected supplies to start April are such that the level of cattle on feed 150 plus days will be record large for any month, any year. On April 1, this record high level of cattle on feed 150 plus days is projected to be 31.25% of the total cattle on feed. The five-year average of harvesting cattle on feed totals during April is 22.5%. If this rate could be achieved this year, that would still leave slightly over 1M head carried over. Extending this carryover into May and adding the 30 days for another month, cattle on feed 180 plus days (the days on feed are currently averaging 195 days) also project to be record high, he says.
The 25-year trend and the ten-year trend both suggest levels near 1.25M head and 1.425M head for this year, respectively, says Wilson. His projections for May 1, 2026 are 600,000 head and 400,000 head above those trendlines. Carcass weight data continues to confirm front-end loaded marketable supplies. Steer weights, heifer weights and average carcass weights each remain at record high levels for this time of year, with steer and heifer weights posting all-time highs in the latest data. Weights are increasing contra-seasonally, as weights should be moving lower into late June, he says. After eking out a new high for the CME feeder index price, feeder cattle and calf prices have retraced slightly since the first of March. The southern border remains closed and the specter of New World screwworm remains lurking on the other side of the border. The importation of feeder cattle from Canada year-to-date is down 47%, he says.