CAB Insider: Market Update
During the last full week of May, cash fed cattle trade brought about an unexpected uptick in prices as Nebraska and Cornbelt feedlots captured values two to four dollars per hundredweight (cwt) higher, averaging $180 to $184 per cwt.
The wide price spread remains, contrasting the Northern to Southern regions, with Texas and Kansas live cash trade occurring at $170 to $171 per cwt. This represents roughly a one dollar per cwt weekly advance.
Carcass weights continue seasonal decline
Carcass weights continue their seasonal decline toward spring lows, but the latest weight data shows a trend shift.
Starting at the first of the year, weights trended primarily in a range of 15 to 20 pounds lighter than a year ago, due to extreme weather conditions and a current fed cattle supply.
Yet, carcass weights declined more rapidly in the second quarter of 2022 in contrast to this year’s more marked decline in the first quarter, which has given way to smaller downward moves in the second quarter.
Average steer weights actually moved up four pounds in the first week of May before dropping four pounds in the subsequent week.
The slowing trend suggests a potential earlier realization of the year’s lightest carcass weights versus the mid-June timeframe marked in the past two years. Industry average carcass marbling achievement will be assisted in the upfront weeks if this shift occurs.
On the product side of the business, boxed beef values were mixed during the report for the week beginning May 29, with weekly average cutout values varying slightly depending on grade.
The Certified Angus Beef (CAB) cutout was up 34 cents per cwt, while commodity Choice was lower by 24 cents per cwt. Select gained on Choice a bit with a $1.21 per cwt cutout increase.
This presented a softer Choice/Select price spread in line with that of a year ago. The CAB premium to Choice firmed up fractionally to average $12.66 per cwt, placing it almost two dollars per cwt lower than a year ago.
A relatively strong quality grade mix, considering the time of year, plus recent upticks in weekly fed cattle slaughter, is underpinning production volume in the commodity Choice and Premium brands certified into branded programs.
This has CAB traditional carcass counts in the 121,000 per week average for the past four weeks versus 119,000 for this period a year ago. Lighter cut weights for the period compressed pounds per head, but weights are now par to a year ago.
Prime carcass tonnage set to decline
Most recent U.S. Department of Agriculture (USDA) quality grade data updates carcass grading trends through May 19. This is precisely the week on the calendar at which the percentage of carcasses meeting USDA Prime marbling levels have sharply decreased in each of the past three years.
Throughout the supply chain, many stakeholders are familiar with the annual spring phenomenon when U.S. average quality grades typically decline from winter highs toward spring lows. Many may think of the grade decline following a trend line generally paralleling that of the annual, similarly predictable, carcass weight lows around this time of year.
While lighter average carcass weights are correlated with lower marbling scores, the annual realization of the lowest measurements for each of these traits is far from perfectly aligned.
Assessing any annual carcass weight pattern in recent history results in the same line graph shape each year. The variation is found in the details as it relates to the exact date the annual high and low weight weeks are realized.
Except for the COVID-19 irregularities of 2020, the annual low has been reached from May 1 through early June in the past 10 years.
It is much more difficult to predict the week when the annual low in the combined percent Choice and Prime quality grades is realized.
In the past 10 years, the “low grade” week occurred as early as mid-April and as late as the end of October. In the most recent four years, the lows were placed in September or October. From 2014 to 2018, the lows came in April and May.
Singling out annual percent Prime grade trends results in a much more consistent pattern than when percent Choice is included. The 10-year trend for percent Prime suggests a strong vote the annual low for the top USDA grade will come in June with six out of 10 years claiming the June low.
The month of July comes in as a second-place favorite with the seasonal bias favoring the two-month window.
Since 2018, the share of carcasses meeting all 10 carcass specifications for CAB has peaked in unison with the spring marbling highs in March. It then declines into early October when modest- and higher-marbling (Premium Choice and Prime) carcasses are near their annual lows and carcass weights plus ribeye sizes are near their annual highs.
The combination of these risk factors results in the annual lowest acceptance rates at this time.
As the calendar turns to June, it’s a fair assumption percent USDA Prime and percent CAB Prime carcasses will fall off rapidly.
The latest 9.5 percent Prime carcass grading rate is 0.25 percentage points ahead of a year ago. The year-over-year increase for the most current week is an improvement on the year as the Prime share has run 0.39 percentage points below 2022 so far.
More importantly, Prime carcass tonnage is 4.6 percent lower over the last four weeks than a year ago due to lower slaughter head counts.
This smaller supply and projected sharp drop in the coming weeks meets up with seasonally heightened beef demand.
The Prime carcass cutout value rests at 12.8 percent higher than a year ago, and retail prices are hefty for Prime cuts. The supply side is set to build further premiums into USDA Prime and CAB Prime carcasses.
This is great to the extent producers should see the rewards. Yet, the consumer side of the equation remains a question as to demand resiliency in a more challenging economic market.
Paul Dykstra is the director of supply management and analysis at CAB. He can be reached at firstname.lastname@example.org.