CAB Market Insider
The fed cattle market remained very steady during the first week of November with a fractionally higher cash fed steer price at $184.92 per hundredweight (cwt). While a positive trend at face value, many in the cattle feeding sector were disappointed the market did not develop as strong as expected.
Live cattle futures activity has been excessively volatile in the past 10 days following the suprisingly large feedlot placements number in the Oct. 1 Cattle on Feed report.
Nearby contracts had posted some recovery through Nov. 2 but have since deteriorated in a very large way. The December contract dipped about $6 per cwt since opening Nov. 3 through closing Nov. 6.
Seasonally, cash fed cattle prices have increased 4.8 percent during the month of November in the past five years. Given the relative currentness of fed cattle supplies at this time, the quite bearish values in live cattle futures defies fundamentals.
This is particularly obvious with the December contract last trading at a $7.29 per cwt discount to cash. Fund trading is having a serious impact on cattle values with a snowball effect remaining strong at the time of this Nov. 8 analysis.
On the other side of the coin, packer margins are thin, or even negative, on a cash basis – a stark contrast to their position during this period in any recent year. Carcass cutout values have started November in a bit of a defensive pattern with an equal share of lower and higher pricing days to start the month.
Fundamentals seem fairly strong considering the reduced head counts for cattle harvested, as compared to a year ago at this time.
Middle meats and supply
driving fourth quarter spreads
At the retail level, November brings a brief shift in focus, away from beef to turkey and ham for Thanksgiving meals. Current wholesale prices for each of these protein items are trading at steep discounts compared to the prior two years.
Turkeys are the classic “loss leader” item in grocery stores during November, as retailers practically give them away to lure a volume of shoppers to spend on the high-margin center of the store goods.
Beef is in the opposing position as the premier protein in the meat case, currently garnering seasonal, record-high cutout values with a comprehensive price at $299.84 per cwt during the first week of November.
High prices tend to be the cure for high prices, but beef demand is historically strong.
Some end meats, such as the inside round, showed declines during the first week of November, but context reveals a sharp increase preceding this in mid-October. The Certified Angus Beef (CAB) inside round price was record high and 26 percent higher than a year ago. An adjustment lower is reasonable considering these factors.
Fifty percent lean trim for grinds are, however, 10 cents per pound or 13 percent cheaper than a year ago as the item seeks winter low price points. This is a noted detriment to total cutout values for steers and heifers.
Middle meats tend to pull fourth quarter cutout values higher and latest trends prove this is currently the case. Ribs and tenderloins are the most popular middle meats for the season and both have posted stronger price trends over the past two weeks.
CAB ribeyes at $13.50 per pound wholesale are 8.5 percent higher than at the start of September. Choice ribeyes are now priced just shy of early September values, but a volume of buying is done at this time for deep-chill programs to be brought out as fresh holiday offerings.
Availability of CAB tenderloins looks to be short since wholesale prices have inflated three dollars per pound in four weeks to a recent $18.25 per pound.
Total supplies of Choice and higher ribs and tenderloins are an issue presently, since weekly fed cattle slaughter is much lower than a year ago as packers cut production hours. The recent downturn in total Choice grading percentage has lower one-third Choice carcass counts under pressure, further fueling the Choice/Select spread.
This has driven the Choice/Select cutout spread to $31.69 per cwt in the Nov. 7 daily report. During the first week of November, CAB/Choice cutout spread was a bit narrower than the prior week’s at $18.24 per cwt but may have widened in the four days yet to be reported.
Combined Choice and Prime quality grades and CAB carcass acceptance percentages tend to bottom in October and November. This, along with holiday middle meat demand, makes this period an ideal time to market marbling-rich, heavily Angus-influenced cattle on a grid.
Using today’s price, CAB carcasses calculate to a $14.50 per cwt premium to cattle feeders on some grids. This is $130.50 per head premium to the cash market and a $9.20 per cwt premium on a live basis.
Paul Dykstra is the director of supply management and analysis at CAB. He can be reached at email@example.com.