RISING retail beef prices will test the strength of demand as the grilling season starts. March retail prices increased from February and were sharply higher than in March last year. USDA’s All Fresh beef price averaged $7.89 per lb, up six cents from February and up 9.1% from last year. USDA’s Choice beef price averaged $8.12 per lb, up four cents and up 6.3%, respectively. Retail prices likely continued to advance in April although sales the week and weekend before last were mostly positive, say analysts. A key question is how aggressive will retailers be in promoting beef during May.
The challenge to maintaining or even advancing current live cattle price is dependent on maintaining demand for beef, says Andrew Gottschalk, HedgersEdge.com. But as average retail beef prices continue to advance, maintaining consumer demand will be severely challenged, especially among lower income earners who make up the majority of U.S. consumers. This group is impacted more intently by rising food costs, as inflation pains these consumers more than high income earners. In addition to food costs rising, so too have home rental costs and fuel expenses increased, he says.
One potential positive is that the comprehensive cutout (cuts, grinds and trim) the week before last fell below year ago levels for the first time in 2024. It averaged $300.88 per cwt, down $2.41 per cwt on the prior week and down 0.4% from the same week last year. The Choice cutout averaged $298.50 per cwt, down $2.50 per cwt from the week before. Spot market sales accounted for 27.0% of the total, formula sales accounted for 53.8%, forward sales accounted for 19.2% and export sales accounted for 12.0%. The Choice cutout the first four days last week declined by one penny to $295.66 per cwt.
Cattle Prices Remain Under Pressure
Cash live cattle prices meanwhile remain under pressure primarily due to two factors, ample supplies of market-ready cattle and negative margins for fed beef processors. The number of cattle on feed 150 days or more on May 1 is an estimated 3.147M head, up 17% on the same date last year, says Gottschalk. Anecdotally, excessive cattle weights, larger carcass weights and increasing quantities of yield grade 4s are being reported to HedgersEdge.com by its clients, adding confirmation to the calculations and projections made about front-end supplies, he says (see CBW’s next story). Packer margins last week were negative for the ninth week in a row, according to HedgersEdge.com data. They were negative by $65.00 per head the week before last. They have been positive in only three out of 17 weeks this year.
A third factor in the market is that those selling hedged cattle continue to be willing to accept lower prices because of the positive basis between cash and futures prices. The week before last saw the 5-area steer price average $182.67 per cwt live or $292.35 per cwt dressed. These were down $1.17 per cwt and $0.74 per cwt, respectively, from the prior week and were lower for the fourth week in a row. The bulk of the trade occurred on Friday (April 19) when the April live cattle contract closed at $181.40 per cwt. The only cash trade early last week (on Tuesday) was of 1017 head in Kansas selling at $181-182 per cwt live. Wednesday saw an active trade in Kansas and Texas at $182 per cwt live, with a few cattle up north selling for $182-283 per cwt live or $290 per cwt dressed. Trade became active up north Thursday morning, with prices increasing to $184-185 per cwt live or $293-294 per cwt dressed. Carcass weights meanwhile remain well above year ago levels. Steers in the week ended April 13 averaged 922 lbs, up 28 lbs on last year. Heifer weights were up 26 lbs.
SUPPLY REMAINS HEAVILY FRONT-END LOADED
FEEDLOT inventories remain heavily front-end loaded after March marketings were down about 5.5% on last year even after taking two less slaughter days than last year into account. The marketing total of 1.706M head was down 13.7% on last year. March placements at 1.746M head were down 12.3% on last year and were the fourth lowest for the month in 28 years. Despite this, the April 1 Cattle on Feed total of 11.821M head was up 1.5% or 174,000 head on last year and was the fourth highest total for the date. The inventory included 7.266M steers and steer calves, up 1.7% from the previous year. This group accounted for 61.5% of the total inventory. Heifers and heifer calves accounted for 4.555M head, up 1.1% from 2023.
Regarding placement weights, all categories except the two heaviest saw substantial year-on-year declines, while the two heaviest had the same numbers placed as last year. The under 600 lb category saw 60,000 fewer cattle placed than last year (330,000 head). The 600-699 lb category saw 55,000 fewer cattle placed (260,000 head), the 700-799 lb category saw 80,000 fewer cattle placed (460,000 head), the 800-899 lb category saw 51,000 fewer cattle placed (466,000 head), the 900-999 lb category saw the same number of cattle placed (170,000 head) and the 1000 lbs plus category saw the same number of cattle placed (60,000 head).
Only two states, Kansas (down 1%) and Washington (down 4%) 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 2.540M head, up 10,000 head, and Kansas was third with 2.400M head, down 30,000 head. All states placed fewer cattle in March than last year. Texas placed 20% fewer, Nebraska 6% fewer and Kansas 13% fewer. All states also marketed fewer cattle than last year. Texas marketed 20% fewer, Nebraska 4% fewer and Kansas 19% fewer.
Even by adding the two lost marketing days in March, marketings would have only totaled 1.868M, down 109,000 head or 5.5% below March last year, says Andrew Gottschalk, HedgersEdge.com. The industry is becoming more front-end loaded in cattle supplies. Weekly harvest levels continue to trend below the levels required to maintain a current fed cattle supply. This is clearly evident by comparing the estimated monthly front-end supply versus year ago and the previous five-year average. This category of cattle (on feed more than 150 days) continues to grow in numbers relative to last year and the previous five year-average throughout the third quarter. He forecasts that the number from May 1 through October 1 will be up 17%, 17%, 16%, 26%, 21% and 21%, respectively, from a year earlier.
Industry Is Walking A Tight Rope
The impact of this supply trend can only be reduced by increasing monthly marketings and/or sharply reducing carcass weights, says Gottschalk. Limiting any reduction in carcass weights must be compared to any benefit from adding additional pounds. As the cost of gain remains significantly below the marginal cost of gain (that is, the cost of adding an additional 100 lbs of weight versus the current selling price of fed cattle), this will benefit the producers who add pounds. Further encouragement is given by high break-even costs of replacement cattle. Thus, the latter action may be warranted in the short-term. Longer term, each eight lb gain in carcass weight adds 1% to weekly beef production, he says. If demand is insufficient to clear this additional production, live cattle prices will eventually suffer, potentially eliminating the entire benefit of adding additional pounds. The fed cattle sector is currently walking a tight rope between short-term benefits of adding additional pounds and the long term consequences of added production, he says.
The feeder cattle and calf supply outside feedyards on April 1 was estimated to be 836,000 head below year ago levels, says Gottschalk. Combined with a reduced calf crop this year (estimated to be down 675,000 head from a year ago), the total supply side in this sector continues to shrink. Several factors could alter this total. Placements could decline or increase which would alter the supply availability. Heifer retention would exacerbate the declining availability of this supply for placement into feedyards. It would require a widespread and severe drought to limit or halt the decline in availability and increase the supply for feedlots, he says.
COF Total Defies Lower Cattle Numbers
Feedlot inventories continue to be stubbornly slow to decline despite declining cattle numbers, says Derrell Peel, Oklahoma State University. The latest report included the quarterly breakdown of feedlot inventories by gender. While the heifer percentage in feedlots remains above the average of the past ten years, the decline from January to April is an encouraging sign that heifer feeding is perhaps slowing. During rapid herd expansion in 2015-2017, the heifer percentage of feedlot inventories dropped below 34% and averaged below 33% for ten consecutive quarters. Heifer feeding is expected to decrease significantly more in the coming months, he says.
Feedlot placements have been declining for many months in response to decreased feeder cattle supplies, says Peel. Average monthly feedlot placements (a 12-month moving average) in March were at their lowest level since April 2017. Total placements in the last six months (October-March), which would account for the bulk of cattle currently in feedlots, were down 2.3% from the same period one year ago, he says.
How then can feedlot inventories be above year earlier levels as they have been for the last seven months, says Peel. The answer is that feedlot marketing rates have fallen even faster than placement rates. Fewer cattle are staying in feedlots longer. In the latest COF report, March marketings were just 14.4% of the March 1 feedlot inventory. Average feedlot marketings in March were 15.4% of feedlot inventories for the past 12 months, below 15.5% for the first time in data back to 1997, he says.
Feedlots have an incentive to keep inventories as close to capacity as possible, says Peel. One way is to slow the turnover rate, effectively making fewer cattle turn into larger inventories. The result is more days on feed and heavier carcass weights. Steer carcass weights have averaged 25 lbs heavier year-over-year for the past four weeks, with heifer carcasses over 21 lbs heavier. There are limits to how much feedlots can slow marketings but feedlots are expected to push carcass weights as far as possible in the coming months. Feedlot inventories are expected to decline in the next few months despite feedlot actions to delay the inevitable, he says.
USDA Raises Production Slightly
USDA’s Economic Research Service (ERS) meanwhile lowers its forecasts marginally for first quarter beef production but raises its forecasts for the next two quarters and the year. It lowers its first quarter forecast by 35M lbs, primarily based on actual slaughter under federal inspection showing a slower pace of fed cattle and cow slaughter than previously expected. Partly offsetting the decline in estimated slaughter were much heavier steer and heifer carcass weights than anticipated. Its outlook for second quarter beef production partly reflects a temporal shift of fed cattle slaughter out of the first quarter and into the second quarter. In addition to the expectation of a more rapid pace of marketings given the number of cattle on feed over 150 days, heavy steer and heifer carcass weights in the first quarter are expected to carry over into the second quarter, it says.
As a result, ERS raised its second quarter beef production forecast by 65M lbs from last month’s forecast. Third quarter projections were raised 55M lbs on higher expected fed cattle and cow slaughter. The increase in fed cattle slaughter stems from higher expected marketings, raised on more anticipated first quarter placements than last month. In the fourth quarter, production is forecast up 45M lbs as more fed cattle are expected to be marketed then as they are expected to remain on feed for longer, along with higher cull cow slaughter. ERS thus raised its outlook for 2024 beef production by 130M lbs to 26.455 billion lbs.
Despite concerns in the futures market, cash live cattle prices remain strong, says ERS. Prices may have peaked sooner than normal but the fundamentals remain for slaughter to increase in the second quarter. Based on current prices and expectations of relative strength in wholesale beef prices and declining supplies of fed cattle, it raised its forecast for second quarter prices $2 per cwt from last month’s forecast to $185.00 per cwt. Compared to last month, more cattle are expected to be pulled out of feedlots in late 2024. Subsequently, third and fourth quarter price projections are also raised $2 per cwt to $184.00 per cwt and $4 per cwt to $190.00 per cwt, respectively. It forecasts an annual price of $185.00 per cwt, more than 5% above 2023, it says.
90CL PRICE PAUSE WILL BE TEMPORARY
THE record-breaking run of the price of domestic lean manufacturing (90CL) beef takes a pause. The price the week before averaged $345.32 per cwt. This was down $1.53 per cwt from the record $346.85 per cwt of the prior week and was the first week this year not to show a weekly increase. But people in the 90CL trade, from cow processors to Australian exporters of frozen lean beef, say the market is taking a temporary pause and that prices will advance again as the U.S. grilling session gets underway and demand for hamburger meat grows.
Lean 90CL frozen Australian imported trimmings, used as a foundation for the equivalent of around one billion U.S. hamburgers each year, were trading at A$9.69 per kilogram on April 18, says Jon Condon of Beef Central. This was their highest level seen in 24 years of recorded data. Market traders say business softened a little the week before last but there is no real sign that the trend seen over the past three months is reaching its end. The market had to take a breather at some point, it just had to, a veteran trader into the U.S. told Condon last week. Prices are being buoyed somewhat by an Australian dollar trading in the low to mid US$0.64 but the underlying reason for the price surge is U.S. demand, says Condon.
Current prices are now officially the highest ever seen, eclipsing even a brief spike in the market seen in 2019 due to widespread COVID sickness among U.S. meatworkers, says Condon. This squeezed the U.S. domestic supply capacity for a short period, causing panic buying of Aussie trim. With only six days to go to complete April export shipment data, it is clear that the volume of Australian frozen beef trimmings into the U.S. this month is going to reach another big number, he says. Export shipment data for the April 1-18 period showed trade to the U.S. was already more than 17,200 metric tons. This suggested that 25,000-27,000 mt may be well within reach for April. This would come on top of booming March beef shipments to the U.S. totaling 26,484 mt, up 58% from the same period last year. The price of Australian lean trimmings has never before hit A$10 per kg but the milestone now looks likely, says Condon.
While beef processors in New Zealand are only now cranking up their annual seasonal dairy cow kill, New Zealand product is already well sold in the U.S., one trader told Condon. He does not see a lot more volume coming out of New Zealand, given what has been sold over the last couple of weeks. That has left Australia and Brazil (the latter burdened by a full tariff for the remainder of the year) as export trimmings suppliers, said the trader. First quarter 2024 Australian beef export to the U.S. reached just over 68,000 mt, the highest quarterly level seen since 2015, says Condon. It was 79% higher than the same quarter last year. The U.S. remains Australia’s largest beef export customer by volume, accounting for 24.7% of total beef export trade so far in 2024, he says.
BEEF IS SAFE: Properly prepared beef remains safe to eat, said the Meat Institute in response to USDA issuing a federal order that requires lactating cows test negative for highly pathogenic avian influenza (HPAI) prior to interstate transport. The Institute also called for USDA and the Centers for Disease Control and Prevention to provide worker safety guidelines for beef processors to ensure workers are protected from infection,. said Julie Anna Potts, president and CEO of the Institute. It encourages USDA and CDC to conduct additional testing and monitoring to continue to ensure properly prepared beef remains safe to eat, she said.
J&F WILL SPEND BILLIONS
BRAZILIAN conglomerate J&F Investimentos SA, which owns protein giant JBS SA, plans to invest 50 billion reais ($9.6 billion) in Brazil over the coming years. This will include 25 billion reais in its pulp and paper business Eldorado Papel e Celulose. Confirmation of the investment, which would raise Eldorado’s pulp production capacity by 2.6M metric tons, hinges on solving an ongoing legal dispute with an Eldorado shareholder, Wesley Batista, a shareholder of J&F, said last Monday.