CONTINUED negative margins for fed beef processors keep a lid on steer and heifer slaughter levels and on cash live cattle prices. Packer margins last week were negative for the sixth week in a row, according to HedgersEdge.com. The red ink grew larger as the week progressed and were negative by $96.27 per head for the week. The reduced harvest levels renewed concerns about beef demand and resulted in a decline in cash cattle prices. The week before last saw live prices average $188.23 per cwt, down $1.33 per cwt from the prior week. Dressed prices averaged $299.49 per cwt, down $2.64 per cwt from the prior week.
These prices came after a selloff on the Monday (March 25) in the futures market largely because of reports that the highly pathogenic avian influenza (HPAI) was detected in a number of dairy herds and resulted in two people contracting the virus. An initial report was that a herd of dairy cattle in Michigan that had recently been relocated from Texas tested positive for HPAI, according to USDA and the Michigan Department of Agriculture and Rural Development (MDARD). The two agencies on March 25 also confirmed the detection of HPAI in two dairy herds in Texas and two dairy herds in Kansas that had cattle exhibiting symptoms. Presumptive positive test results were also been received for additional herds in New Mexico, Idaho and Texas. USDA’s National Veterinary Services Laboratories (NVSL) also confirmed that the strain of the virus found in Michigan was very similar to the strain confirmed in Texas and Kansas and appears to have been introduced by wild birds.
Contracts Plummeted Last Monday
A further report last Monday said a person who worked on a Texas dairy farm and had direct contact with dairy cattle tested positive for avian flu late the week before. This report caused the April live cattle contract on Monday to fall 492 points to close at $180.07 per cwt, while the June and August contracts lost 492 points and 610 points, respectively. The irony is that no beef cattle have been found to have contracted the virus. But the futures market clearly did not like what it read. The April contract closed on March 21 at $188.37 per cwt, so it had lost 830 points by last Monday.
The decline did not bode well for cash live cattle prices last week and perhaps for the rest of April. The sizeable positive basis between cash and futures prices will favor those with hedged cattle. As in times past, their acceptance of lower cash prices will keep a lid on prices on the open market. Tuesday last week saw a very light trade up north at $185 per cwt live or $295 per cwt dressed in Iowa and at $298 per cwt dressed in Nebraska. Futures prices regained some ground Tuesday but fell again Wednesday. The only trade that day was again up north where 23,116 head sold at $186-189 per cwt live or at $295-298 per cwt dressed. Thursday saw futures prices rally somewhat. Thursday morning saw more trade up north at $187 per cwt live or at $297-298 per cwt dressed. The only trade down south was 168 head selling in Kansas at $297 per cwt dressed.
Fed cattle meanwhile are grading even better than they did a year ago, while carcass weights remain well above last year’s levels. Cattle in the week ended March 16 graded 10.94% Prime versus 9.62% a year ago. They graded 74.12 % Choice versus 74.79% and 11.50% Select versus 12.15%. For the same week, steer weights averaged 924 lbs, up 2 lbs from the week before and up 29 lbs from the same week last year. Heifer weights averaged 850 lbs, up 2 lbs from the week before and up 23 lbs from the same week last year. Overall weights averaged 847 lbs, the same as the prior week but up 27 lbs from the same week last year.
BEEF CUTOUTS GO INTO FREEFALL
REDUCED slaughter levels for yet another week fail to prevent boxed beef cutouts values from going into a freefall last week. The action deepens concerns that beef demand remains weak, as beef production year-to-date is down 4.2% on the same period last year. Total weekly slaughter levels were below 600,000 head for seven weeks until last week, with steer and heifer slaughter as low as 466,00 head the week before last. It was an actual 472,608 head in the week ended March 23. Last week’s slaughter total however was an estimated 609,000 head, the first above 600,000 head since the week ended February 17.
The comprehensive cutout (cuts, grinds and trim) the week before last averaged $313.31 per cwt, down $2.41 per cwt from the prior week. The Choice cutout averaged $312.26 per cwt, down $1.43 per cwt. The Choice cutout on a daily basis collapsed last week despite the much-reduced steer and slaughter. It declined $9.57 per cwt in four days to be at $297.15 per cwt Thursday. The Select cutout fared little better, losing $7.38 per cwt to be at $296.05 per cwt Thursday. The Choice-Select spread was $1.10 per cwt, easily its narrowest so far this year. The comprehensive report saw spot market sales represent 28.2% of total sales. Formula sales represented 50.5% and forward sales represented 21.4%. Exports sales represented 13.7%.
90CL Price Hits Record High
The wholesale price of lean beef trimmings (90CL) reached a record level of $338.56 per cwt. the last week of March and appears to still be moving higher. The average was up 23.7% on the same week last year. 90CL is one of the principal ingredients in many ground beef formulations, says Derrell Peel, Oklahoma State University. Non-fed beef (cull cows and bulls) is the source of 90s. Fed beef (fed steers and heifers) produce fatty trimmings, commonly reported as 50% lean trimmings. The price of 50s the last week of March was $102.84 per cwt, down 28.6% on last year. A reference formulation of ground beef consists of a 5:1 ratio of 90s to 50s to produce an 83.3% lean ground beef product. This wholesale ground beef formulation is currently priced at $299.27/cwt, also a record, says Peel.
Cull cows and bulls contribute to non-fed beef production, which is calculated as cow slaughter multiplied by cow carcass weights, plus bull slaughter multiplied by bull carcass weights, says Peel. Monthly average non-fed beef production peaked cyclically in January 2023 and has dropped 8.1% in the last 14 months. By contrast, fed beef production has decreased 4.4% since the recent cyclical peak in 2022. Thus, the supply of non-fed beef is tightening faster than that of fed beef, he says.
Cull cow prices are increasing in response to the demands of the non-fed beef market, says Peel. The price of average dressing boning cows in Oklahoma auctions the last week of March was $133.96 per cwt, a new record high. Cull cow prices the same week ranged from $139.02 per cwt for high dressing breaking cows to $118.08 per cwt for low dressing lean cows. Total cow slaughter was down 12.8% year-over-year for the first 11 weeks of the year, with dairy cow slaughter down 14.2% and beef cow slaughter down 11.3%. Beef cow slaughter is expected to decrease more sharply if herd rebuilding conditions are favorable this year. This will further decrease non-fed beef production and add to the imbalance between 90s and 50s in the ground beef market, he says.
Each fed steer and heifer produces roughly 150 lbs of 50CL trimmings, says Peel. In average terms, the 5:1 ground beef ratio therefore requires 750 lbs of 90s to produce ground beef from one fed steer or heifer. This is more or less the boneless trimmings from two cull cows. Domestic non-fed beef production is only enough lean to match a fraction of the 50s produced in fed beef production. Imported beef trimmings are used to augment domestic lean beef supplies and utilize more 50s to increase the total ground beef supply, he says. Imported beef trimmings are increasing in response to declining lean beef supplies in the U.S. Current prices for 90s, and indirectly cull cows, in the U.S. reflect the net impact of imported beef on U.S. market values. Declining total beef production is pushing beef prices generally higher. Ground beef is even more important in this high beef price environment but ground beef supplies are declining even faster. Beef supplies will continue to decline, led by decreasing non-fed beef supplies and leading to still higher beef prices ahead, he says.
DAIRY BEEF IS MAKING ITS MARK
PRODUCING beef from dairy-crossed cattle is starting to have a significant impact on the beef market, say university specialists. For the past five to six years, beef-on-dairy cattle have become more common in the industry. In 2024, it is expected that 3.2M beef-on-dairy crosses will enter the market. In 2026, that number is estimated to be 5M head to 6M head. This was the main topic of discussion during the I-29 Moo University on March 21 in Sioux Falls, SD, says news reports.
If the industry gets to the numbers that CattleFax projects, that would be about 15% of the fed cattle beef market, so it is pretty substantial, Ken Odde, professor emeritus, Kansas State University, told the meeting. Beef breeds most used in these crossbred cattle include Angus, Charolais, Simmental and Limousin. Holstein is the most commonly used dairy breed, followed by Jersey. What the industry is really doing is replacing the dairy steer with a beef-on-dairy steer because that dairy steer has been going to the beef world historically. Now what is happened is the industry is creating more value by adding that beef genetics to that dairy animal, said Odde.
This is due to semen availability, Bob Weaber, a Kansas State University professor and extension specialist, told the meeting. Beef breeds tend to mirror semen availability on the beef side and that is one of the transitions the industry is starting to see. Historically, Angus has had a large portion of this market share and part of that is driven by Angus sire semen availability in the market space. But there is a growing emphasis on some of the continental breeds and continental Angus crossbred bulls or hybrid bulls. Holstein bull calves tend to be of less value in the beef cattle markets. By raising beef-on-dairy cattle, producers can maximize their cattle profits, said Weaber.
What is happening is that dairy producers are switching to beef-on-dairy cattle because they can produce a higher value calf and capture more money from the sales of that calf, said Odde. Holstein meat is known for good marbling but a flat loin area. By adding beef genetics, they are improving the meat quality. So, what the industry is doing is by adding the beef genetics is increasing growth, increasing or improving feed efficiency and producing a carcass that is more desirable to the beef industry, he said.
RED MEAT EXPORTS BOOST CROPS
RED meat exports have long provided a big boost to U.S. corn and soybean producers, hence the producers being an integral part of the U.S. Meat Export Federation (USMEF). Beef and pork exports amounting to $18.1 billion in 2023 created a significant impact for corn and soybean industries. That is according to an independent study conducted by The Juday Group and released by USMEF. The study quantified the returns that beef and pork exports brought to corn and soybean producers nationally and on a state-by-state level for leading corn and soybean-producing states.
The Juday Group has been charting the impact of red meat exports on corn and soybean value since 2016, says Dave Juday, the group’s founder and principal. Despite the international headwinds the red meat industry faced in 2023, red meat exports contributed substantially to the bushel value of US corn and soybeans, he says. Nationally, beef and pork exports contributed an estimated total economic impact of 14.6% per bushel to the value of corn and 13.9% per bushel to soybeans in 2023. Beef and pork exports accounted for 512.7M bushels of U.S. corn usage, which equated to a market value of $3.05 billion at an average 2023 corn price of $5.95 per bushel, says Juday.
Beef and pork exports accounted for 3.07M metric tons (mt) of distillers dried grains’ (DDGS) usage, equating to $671.62M at an average price of $219 per mt. Beef and pork exports contributed an estimated total economic impact of 14.6%, or 87 cents of corn bushel value, at an average price of $5.95 per bushel. Pork exports accounted for 96.8M bushels of U.S. soybean usage, which equated to a market value of $1.36 billion, at an average price of $14.07 per bushel. Pork exports contributed an estimated total economic impact of 13.9% or $1.95 of soybean bushel value, at an average price of $14.07 per bushel.
JBS TOUTS ITS DIVERSITY
JBS SA, the world’s largest protein company, had sharply reduced EBITDA in 2023 versus 2022 and a net loss of nearly $100M. But it says it has strengthened two important businesses and touts its multi-protein and multi-geography strategy. JBS, based in Sao Paulo, Brazil, had net revenue in 2023 of $72.918 billion, versus $72.614 billion in 2022. Adjusted EBITDA was $3.458 billion, down 48.6% from 2022’s $6.722 billion. It had a net loss for the year of $198.9M, versus net income in 2022 of $2.997 billion.
JBS’s focus on operational excellence in 2023 was key to correcting the course of two of its businesses that underperformed, USA Beef and Seara, says global CEO Gilberto Tomazoni. JBS identified issues and took action to adopt management measures based on its culture, with a focus on people and discipline in execution. The results of these measures are already being felt. The outlook at Seara for 2024 is positive, with significant improvement already seen in the first quarter of the year, which is traditionally challenging for the sector. Seara is now well-positioned to reap the rewards of investments in expansion made in recent years, he says.
JBS’s multi-protein and multi-geography strategy puts it in an unmatched position in the global industry, says Tomazoni. This diversity allows it to capitalize on the cattle cycle upswing in Brazil and Australia, while its American operation faces margin declines due to current market conditions. In Australia, the improved outlook is reflected in a significant increase in margins in the fourth quarter of 2023, compared to the same period last year. In Brazil, where the situation is similar, significant growth in cattle processing volume, increased value-added product sales, the authorization of new plants to supply the Chinese market, as well as improved profitability of exports, offer promising prospects for the beef business in the short- and long-term, he says.
JBS’s chicken and pork businesses faced persistent pressure on production costs throughout 2023, says Tomazoni. But they are already benefiting from the normalization of grain prices, as evidenced by the results of Pilgrim’s Pride and USA Pork. The recovery of margins in these businesses also reflects a better balance of supply and demand. Pilgrim’s margins saw strong growth, rising from 1.5% in the fourth quarter of 2022 to 6.8% in the fourth quarter of 2023. Similarly, USA Pork results jumped from 4.8% to 9% in the same period.
JBS Brazil Had Big Fourth Quarter
JBS Brasil (JBS’s beef business there) recorded net revenue of $3 billion in the fourth quarter, up 10.8% year-on-year. This growth mainly reflected higher volumes sold, says JBS. For the year, net revenue was $11.1 billion, down 2.4%, due to the reduction in prices in both the domestic and international markets. In the domestic market, revenue in the fresh beef category grew 12% in the fourth quarter and 3% in 2023 versus 2022, both as a result of higher volumes sold in the period. This growth was mainly attributed to the favorable livestock cycle, resulting in greater availability of animals for slaughter. According to the Brazilian Institute of Geography and Statistics, total cattle slaughter in 2023 grew 14% year-on-year and grew 20% in the quarter.
JBS in 2023 maintained its focus on commercial execution, increasing and improving the level of service with partners in its Friboi+ program, it says. It brough the Friboi and Swift brands closer to consumers and improved the supply of products with greater added value. Export sales demonstrated higher volatility between quarters. The beginning of the year was marked by a self-embargo on beef exports to China following the confirmation of an atypical case of BSE. This negatively impacted prices and volumes. With the end of the embargo, the second quarter benefited from the reopening of exports to the Chinese market, in addition to a more favorable international market. The second half of the year was marked by lower prices but with higher sales volume. EBITDA totaled $176M in the quarter, up 173% on 2022, and was $469M for the year, up 0.1%. The profitability of this business unit also benefited from lower cattle prices. They were down 17% year-on-year in the quarter and down 20% for all of 2023, says JBS.