CAB Insider: Market Update

The fed cattle market traded slightly higher during Fourth of July week, with the five-area fed steer average at $182.06 per hundredweight (cwt). 

Nebraska feedlots sold steers as high as $186 per cwt live and $290 per cwt on a dressed basis. The Texas, Oklahoma and New Mexico market averaged $1.78 per cwt on just over 3,000 head sold in the negotiated cash market.

The total federally-inspected cattle harvest was especially small during the holiday week with packing firms closed for Independence Day. Some of the large packing plants were also closed on July 3, resulting in just 62,000 head of fed cattle harvested compared to 100,000 head on July 5-6.

So far this year, only seven weeks have featured a fed cattle slaughter larger than last year. On average, the weekly steer and heifer slaughter has been 15,000 head smaller in 2023, roughly a three percent change.

In the past three years, the July fed cattle slaughter total has averaged 2.6 percent or 13,300 head-per-week larger than the rest of the year. However, cattle on feed estimates remain restricted, and packers have been disciplined in keeping slaughter head counts low. 

Cutout values slip while fed prices hold steady 

Packer margins are estimated to remain positive at this time. But, cutout values continue to slip while fed prices are steady to slightly higher. Given this scenario, the smaller slaughter trend should likely continue. 

Boxed beef sales tend to dip at the beginning of July with the holiday-shortened business week and a transition from spring holiday-riddled markets to full-fledged summer seasonal weather.

Cutout values are in the range of 20 percent higher than a year ago on lower available supplies. Sales for delivery in the zero to 21 day timeframe are generally in line with a year ago, considering the smaller slaughter totals. 

Yet, sales for delivery beyond 21 days are noticeably lower in the latest reports. This could be a sign of price fatigue at retail or expectations on buyers’ behalf that prices should continue to seasonally decline in July. 

Quality is in demand as is made clear in the cutout price spreads. Urner Barry’s $27.80 per cwt Choice/Select spread based on the simple average is a bit lower than the U.S. Department of Agriculture’s (USDA) weighted average value of $31.32 per cwt. 

This is a record-wide spread for the first week in July, but values near this level have been tested in three of the last four years. 

The Certified Angus Beef (CAB) cutout premium to Choice at $17.70 per cwt is healthy but in line with the seasonal expectation after coming off of the early June high of $26.45 per cwt.

Carcass weights

find bottom late

In a continuation of tracking seasonal transitions, we turn attention to carcass weights. Confirmed USDA weight reports lag two weeks behind, but formula-priced steer and heifer carcass weights are current through the holiday week. 

This represents a large portion of the total head count.

Fed cattle carcass weights traditionally find their annual lightest point in the spring of the year. In the past decade, the annual low was realized in May or early June. 

Yet, the latest data indicates this year’s low was potentially realized two weeks ago, the last week in June, at 848 pounds for combined steers and heifers. This isn’t finalized, but last week’s formula cattle weights were seven pounds higher – the beginning of a seasonal turnaround when weights will build to their annual heaviest in the fall.

The “so what” in this data is the fact even though the fed cattle slaughter counts are small, they saw lighter cattle harvested well past the early June expectation.

Supplies of market-ready cattle are very current, and both the market average price and quality price premiums show potential to outperform typical July expectations.

Looking ahead, there may be implications for further light carcass weights depending on the basis relationship between cash and futures. However, cattle supplies read as quite tight in the fourth quarter, resulting in the likelihood weights and finish on harvested cattle could be lower than recent years’ trend lines.

Now is the time for cattlemen to evaluate the potential for exceptionally strong premiums in high quality CAB traditional and Prime carcasses down the road.

Feedlot management protocols favoring protection of bred-in marbling potential make financial sense a majority of the time but may become more glaringly true in the fourth quarter this year. 

When high quality carcasses are in short supply the price spreads tend to explode. Be ready.

Paul Dykstra is the director of supply management and analysis at CAB. He can be reached at pdykstra@certifiedangusbeef.com.