THE cash live cattle and wholesale beef markets remain unusually strong as July arrives. June proved to be a better month than expected for cattle and beef prices. Analysts though expect July to see some weakness in demand as it usually declines 3% from June. However, the Independence Day holiday this Thursday will temporarily boost beef cutout values because of the holiday-shortened production. Analysts expected last week’s slaughter level to increase to 625,000 head to reflect no kills this Thursday. But packers last week continued to keep a lid on their kills, with an estimated total of 474,000 head through last Thursday. This week’s slaughter total might be as low as 520,000 head, versus 536,330 head last year. The prior week last year saw a slaughter total of 650,573 head, which was one of the largest totals of the year.
The week before last saw the national comprehensive boxed beef cutout (cuts, grinds and trim) increase by $6.19 per cwt to $316.38 per cwt. This was the highest weekly cutout of the year and was up 26.5% on the same week last year. Also of interest was that the week saw the price of domestic lean manufacturing beef (90CL) set a new record of $364.14 per cwt for the sixth week in a row. This was far above the Choice cutout, which averaged $316.19 per cwt.
Spot Sales Were 27% Of Total
The week saw spot market sales represent 27.1% of the total volume, while formula sales represented 54.6%. Forward sales represented 18.3% and export sales represented 12.3%. The Choice cutout last week looked set to come under pressure despite this week’s reduced production. Hotdog and hamburger season is now underway and is normally accompanied by a seasonal slowing in beef demand, says Andrew Gottschalk, HedgersEdge.com. This can be exacerbated by the heat forecasts seen moving forward, he says.
Cash live cattle prices meanwhile hit another all-time high. The 5-area steer price the week before last averaged $194.84 per cwt live or $310.55 per cwt dressed. These were up $2.29 per cwt and $5.08 per cwt, respectively, from the prior week. The live price began the year averaging $174.01 per cwt, so the latest average was $20.83 per cwt higher. Second quarter prices now look set to average around $188 per cwt., versus $179.02 last year.
As in past weeks, only a light trade occurred the first three days of last week. Monday saw 657 head sell in Iowa-Minnesota at $197 per cwt live or $314 per cwt dressed. Tuesday saw 1198 head sell in Kansas at $188 per cwt live, with another 76 head selling in Iowa. Wednesday was a repeat of Tuesday, with the only sales occurring in Iowa at $198 per cwt live or $316-317 per cwt dressed and in Kansas at $188-198 per cwt live. No sales were reported for the three days in Nebraska or Texas. With packers procuring cattle for a holiday-shortened week, it appeared they felt little pressure to buy on the cash market. But a positive basis between cash and futures prices should lend itself to moderately active trade volume, wrote Gottschalk on Thursday morning. The basis though narrowed sharply after Wednesday’s and Thursday’s advance in the June live cattle contract.
Carcass weights meanwhile remain even further above last year’s levels than in prior weeks. Steer weights in the week ended June 15 averaged 917 lbs, down 1 lb from the prior week but up 38 lbs from the same week last year. Heifer weights averaged 836 lbs, down 2 lbs but up 27 lbs, respectively. Overall weights averaged 847 lbs, flat with the prior week but up 38 lbs from last year. This was the equivalent of adding 28,890 head to that week’s slaughter total of 615,083 head, says HedgersEdge.com.
INDUSTRY ASSAILS USDA RULE
THE U.S. beef industry’s two largest trade associations strongly criticize USDA’s latest proposed Packers and Stockyards rule, which is called Fair and Competitive Livestock and Poultry Markets. The newly-proposed rule is a direct attack on cattle producer profitability, says National Cattlemen’s Beef Assn vp of government affairs Ethan Lane. By creating criteria that effectively deems any innovation or differentiation in the marketplace improper, USDA is sending a clear message that cattle producers should not derive any benefit from the free market but instead be paid one low price regardless of quality, all in the name of so-called fairness, he says.
An even more detailed attack on the proposed rule came from the Meat Institute, which represents the U.S. meat processing industry. The latest proposed rule change is attempting to set meat production back decades by encouraging litigation and limiting how livestock producers can market their animals to packers, says the Institute. USDA is attempting to circumvent Congress and the courts to reverse the longstanding legal standard that parties must demonstrate harm to competition to sue and win under the Packers and Stockyards Act Section 202 (a) or (b). Removing the need to show harm to competition will encourage frivolous lawsuits. To protect themselves, meat packers may be forced to curtail the use of Alternative Marketing Agreements (AMAs) to minimize these costly litigation risks, says the Institute.
Unfortunately for the Biden Administration, Agriculture Secretary Tom Vilsack has tried these changes before, says Julie Anna Potts, President and CEO of the Institute. They have failed before the courts, conflict with Congressional intent and are a blatant attempt to pick winners and losers in the marketplace. Under these proposed rules, everyone loses, the livestock producer, the packer and ultimately the consumer, she says. Portrayed as an effort to increase competition, this government interference comes when fed cattle prices were at record levels for most of 2023, surpassing the 2014-2015 previous record highs. Now, well into 2024, cattle prices remain at record levels. What is the Biden Administration trying to fix? The cattle price outlook for 2024 continues to be bullish, with USDA projecting the annual average price of cattle to increase over the 2023 record based on a smaller cattle supply, she says.
Changes Would Decouple Demand Signals
Contrary to USDA’s assertion, these changes would introduce uncertainty into the market and decouple the demand signals that producers receive from beef consumers, including consumers’ willingness to pay for value-added attributes, says Potts. At low points in the cattle cycle, like this year’s historically small cattle herd, it puts at risk the value that producers earn from sustained beef demand. As the expansion phase of the cattle cycle begins, it would undermine the benefits earned from growing beef demand. In response to consumer demands for value-added meat products like ‘no antibiotics ever,’ ‘grass-fed’ or even someday ‘carbon neutral,’ AMAs have rewarded livestock producers for investing in these attributes while ensuring that meat packers can make the high quality products that consumers want to feed their families, she says.
The Meat Institute also believes the proposed change violates the “major questions doctrine,” as articulated in the Supreme Court’s ruling in west Virginia v. Environmental Protection Agency, says Potts. This is because USDA is acting without the permission of Congress and is proposing administrative rules that will have a dramatic effect on all stakeholders in the meat and poultry markets. The President and his Administration continue to pursue policies that will increase costs for consumers. From Secretary Vilsack’s proposed changes to the P&S Act’s rules to USDA’s delayed modernization of pork inspection to EPA’s proposed wastewater guidelines, these policies will prove costly to the 98% of American households who purchase meat to feed their families, says Potts.
The American beef market has modernized to allow producer-driven innovations or AMAs, says the Institute. AMAs allow producers more flexibility in how to market their cattle, protect themselves against risk and earn better prices. AMAs for fed cattle include forward contracts, formula pricing, negotiated grid trades and packer-owned transfers. The Institute offers several examples of these, which CBW outlines on the next page.
Forward Contracts Offer Certainty
A cattle producer signs a contract with a feedlot operator, says the Institute. The two parties agree that in six months, the producer will deliver 100 cattle at a fixed price of $1000 per head. When the delivery arrives at the lot, despite the current market price, the producer receives $1000 per head. This forward contract gives the producer certainty and provides the feedlot operator a stable supply at a fixed cost, it says.
Regarding formula pricing, a cattle producer enters a formula pricing arrangement with a small beef packer/processor. The formula determines the price based on the agreed criteria: price per pound for carcass weight; for higher quality grades like Choice or Prime, $.10 per pound. It might also include a penalty like $0.05 per pound for below grade carcasses. Formula pricing also provides potential premiums for other value-added production practices that align with consumer demand. When the cattle are delivered, the pricing is calculated based on the formula. This lets the producer be rewarded for investments in the herd like improved genetics and high quality feed, provides risk management opportunities for the producer and ensures the processor receives high quality cattle to meet demand. Ironically, USDA has invested significant resources in establishing a cattle market library to support this method of pricing, says the Institute.
Experts agree and studies show that AMAs increase beef demand, says the Institute. AMAs have been studied for decades. USDA even commissioned the IRI Study On Livestock and Meat Marketing final report. In terms of the legal background, eight federal courts of appeals have unanimously concluded that a plaintiff must show actual or likely harm to competition to make a claim and win under Section 202 (a) or (b) of the P&S Act. Regarding the share of the consumer dollar, Vilsack said last Monday that the share received by farmers and ranchers was dropping. But the Institute says the share of the consumer dollar in the beef market is steady, with the meat packer and processor receiving the smallest share.
GROUND BEEF PRICES ROSE 6.5%
RETAIL ground beef prices, based on price per gram of protein, rose 6.5% in the first five months of this year versus the same period in 2023. USDA’s Economic Research Service (ERS) says it calculated monthly retail prices per gram of protein content across selected livestock, poultry and egg products from January 2021 to May 2024. The protein content estimate per gram, a physical characteristic associated with products, is static. However, retail prices respond to various economic factors that affect both the supply and demand, says ERS.
Between 2021 and 2024, on a per gram of protein basis, the retail prices for selected animal products trended higher with inflation. However, at a closer look, the retail prices for several protein choices on average were year-over-year lower in the first five months of this year. The retail price per gram of protein was year-over-year lower for bone-in chicken legs (down 4.0%), boneless chicken breast (down 5.4%, eggs (down 23.6%) and boneless ham (down 0.7%). Conversely, the retail prices per gram of protein were year-over-year higher for ground beef (up 6.5%) and boneless pork chops (up 2.4%). Absent major product specific disruptions, the relative ranking of the selected products was mostly unchanged for the period observed except for eggs, says ERS. Since 2022, egg prices have followed a notably different pattern than prices of most other animal products. Supply shocks due to Highly Pathogenic Avian Influenza outbreaks have contributed to volatile price changes over the period, says ERS.
ERS meanwhile cuts its forecast for 2024 beef production by 5M lbs to 26.590 billion lbs. This change is the result of much heavier expected cattle carcass weights mostly offsetting a slower expected pace of fed cattle marketings for the remainder of 2024, it says. Its forecast for second quarter 2024 beef production is updated on reported slaughter counts and carcass weights through early June. Its third and fourth quarter production forecasts are raised on heavier expected average carcass weights that more than offset a slower pace of marketings. Beef production in 2025 is projected higher than last month’s forecast by 245M lbs pounds to 25.365 billion lbs. Heavier cattle weights are expected to carry over into early 2025, along with a faster expected pace of marketings in early 2025 as marketings are shifted from late 2024, says ERS.
MAY SEES LARGE PLACEMENTS
CATTLE feeders placed more cattle in their pens in May than expected. The total placed was 2.046M head, which was 4.3% higher than in May 2023 and was 4.9 percentage points higher than analysts’ average forecast of 99.4%. In addition, the three heaviest weight categories accounted for 59% of the year-over-year increase in placements. This means that the bulk of the cattle placed should be market-ready by mid-December, says Andrew Gottschalk, HedgersEdge.com. May marketings at 1.955M head were up 0.2% on last year. The marketing rate (marketings versus cattle on feed) was the highest since 2018. The June 1 COF total of 11.583M head was down 0.1% from last year but was 0.7% higher than forecast. The total was 7000 head lower than a year ago but was the lowest total for the date since 2018.
Regarding placement weights, all categories had slightly larger placements than last year. The under 600 lb category saw 15,000 more cattle placed than last year (395,000 head). The 600-699 lb category saw 15,000 more cattle placed (315,000 head). The 700-799 lb category saw 5000 more cattle placed (485,000 head). The 800-899 lb category saw 24,000 more cattle placed (531,000 head). The 900-999 lb category saw 15,000 more cattle placed (230,000 head) and the 1000 lbs plus category saw 10,000 more cattle placed (90,000 head).
Four states, Arizona (down 1%), California (down 4%), Colorado (down 4%) and Kansas (down 6%), had fewer cattle on feed than a year ago. Texas had the most cattle on feed with 2.840M head, with its total up 30,000 head from a year ago. Nebraska was second with 2.480M head, up 30,000 head, and Kansas was third with 2.320M head, down 150,000 head. Six states placed more cattle than a year ago. Arizona placed 4% more, Idaho 10% more, Nebraska 10% more, Oklahoma 30% more, Texas 11% more and Washington 18% more. Kansas placed 2% fewer cattle. Four states, Colorado, Minnesota, Oklahoma and South Dakota, marketed more cattle than last year. Texas marketed 1% fewer, Nebraska 2% fewer and Kansas the same number as last year.
Front-End Will Remain Higher
Unless fed cattle prices can stage another advance, feeder cattle and calf prices will continue to stall or even trend modestly lower, says Gottschalk. It is readily apparent that these prices are at or near cyclical tops relative to fed cattle prices. Unless fed cattle prices can continue to advance from current levels, feeder cattle and calves are likely fully priced for the current period. On a positive note, the feeder cattle and calf supply will continue to shrink, limiting any price decline as well as shortening the duration of any decline. The tightening supply of feeder cattle and calves outside feedyards (estimated to be down 818,000 head on June 1) will serve to cushion any decline. This year’s calf crop should also decline by about 675,000 from last year, he says.
At the current harvest rate, annual cow slaughter projects to decline by 962,695 head, says Gottschalk. Beef cow harvest this year is estimated to decline by about 516,165 head from last year’s level. It is interesting that to date, there is no decline in year-over-year heifer harvest. As heifer withholding for breeding begins, this would entail a further reduction in the level of annual beef production and in the available feeder cattle and calf supply for feedlot placement. These factors should lend additional price support to feeder cattle and calves on any price correction. Given the aforementioned conditions, he is maintaining his annual average price forecasts for the year. They are: 700-800 lb feeder cattle at $248 per cwt and 500-550 lb calves at $310 per cwt.