By Paul Dykstra
The fed cattle market has been in a steady decline since the first week of May when the U.S. Department of Agriculture (USDA) live steer average price was just over $143 per hundredweight (cwt).
The decline to $139 per cwt is not uncharacteristic of a May market, as the 2020 May trend skews the 10-year average with its $19 per cwt rally amid pandemic chaos. That year aside, six of the other nine preceding years featured a lower fed cattle price at the end of May.
The oversold condition of the June Live Cattle was discussed in the last CAB Insider, and this has only grown in the past two weeks. Particularly as the calendar turned to June, the market saw the previous cash fed cattle price at a nine dollar per cwt premium to the June board.
As of May 31, the June contract was hit hard with a $1.57 per cwt decline, even as boxed beef cutout prices strengthened.
Fed cattle fundamentals point out the larger finished cattle supply in June as a cloud hanging over the market. On the other hand, carcass weights in the latest USDA report for the week of May 9 show a large seven-pound drop for steers and 10 pounds lighter on the heifers. This suggests currentness has picked up in the fed-cattle sector.
Packers have had an appetite to keep daily processing levels quite high with 680,000 head of all federally inspected slaughter. This resulted in 534,000 head of fed steers and heifers, the largest this year by 14,000 head.
Recent smaller production was only due to the holiday weekend, which limited the May 29 business to just 18,000 head. The slaughter pace has been very strong lately, with two 99,000-head days of fed cattle within two weeks, the largest seen since the pandemic onset and packing sector slowdown.
below a year ago
Carcass weights are always top of mind for Certified Angus Beef (CAB) in spring as we try to keep buyers and sellers in the cattle and beef markets informed on quality carcass supplies and price implications. This heightened focus is a function of carcass weights tending to find their annual lows in May.
Moreover, through the pandemic fed-cattle backlog and the trailing effects of slower plant processing speeds, carcass weights reached new records. Expectations suggest the year-on-year increases in carcass weights would abate in early 2022 were not satisfied.
In fact, weighted average steer/heifer carcasses in 2022 have only been lighter than 2021 in four individual weeks. So far, this year’s weights have been seven pounds heavier than 2021, 15 pounds heavier than 2020 and 38 pounds heavier than 2019.
However, the latest data show an abrupt turnaround in the heavier annual carcass weights. March featured carcasses are roughly 13 pounds heavier than a year ago, but since the week of April 18, carcasses quickly realigned the trend to reach four pounds lighter than a year ago in the second week of May. This latest week in the data indicates a 10-pound one-week drop for heifers and a seven-pound drop in steer weights.
This scenario reflects a culmination of several weeks of underperforming cattle in the Northern feedlot region with respect to carcass quality grades.
Feedyard placement data had suggested market-ready cattle would be less numerous through April with a transition to larger supplies beginning to show up in June. May was logically the transition month, but so far it looks like the lighter weights and poorer grading in the past month portray a market remaining very current, at least in the North.
The bottom line for now is most recent slaughter data suggests carcass weights and market-ready cattle are not burdensome. This applies more looking at the Northern feeding region.
We’re even more confident today near-term quality grades will be challenged to keep up with the past two years. The elevated ration costs and continuing positive cash basis entering June only confound the issues.
Although we’ve covered those factors in recent editions, it’s timely to reiterate the facts: Carcass quality premiums widened last week and will likely continue to do so as they meet seasonal expectations, presenting premium opportunities for cattle which can surpass average quality.
Heifers surge in
fed cattle mix
Heifers in the fed cattle slaughter surged to 39.4 percent of the total for the week of May 9, a 1.4 percentage-point jump from the prior week. This is not unusual for other months, but it is uncharacteristic for early May.
The last two years indicate heifers at an average of just 35.5 percent for the same week. The comparatively larger number of heifers in that week’s 2022 data came with a 10-pound decline in heifer carcass weights. This made for a greater-than-expected impact in pulling average carcass weights lower.
Year to date, the heifer count is up 2.5 percent, while steers are down 1.9 percent in the slaughter mix. This is just further indication of heifer liquidation rather than retention in the herd for breeding purposes.
Paul Dykstra is the assistant director of supply management and analysis at CAB. He can be reached at email@example.com.