CAB Market Update
The run-up in fed cattle prices over the past four weeks has been impressive with a $16.67 per hundredweight (cwt) live steer inflationary trend culminating in the second week of May’s $262.85 per cwt steer price.
Federally inspected harvest head counts have also improved to fulfill larger boxed beef sales commitments on spring grilling and holiday demand. The past three weeks have averaged 532,000 head weekly counts compared to the 516,000 head average in the prior three weeks.
Fed cattle market sees steep upward trend
The steep upward price trajectory in the fed cattle market remains wholly supported on fed cattle remaining in tight supply and the tight grasp of cattle feeders keeping feedlot stays and carcass weights elevated.
Weights continue to underpin beef production tonnage, cutting the harvest pace deficit for fed cattle.
Cash cattle values have run higher with no support from boxed beef prices as the comprehensive cutout has been relatively stagnant for the past six weeks after pulling back from March highs.
Wholesale prices are expected to adjust higher into June, in keeping with previous seasonal trends, but this has yet to develop.
June live cattle futures remain a deep discount to cash, trading at a $10.95 per cwt below the latest cash prices as of May 21. At this point in May, plenty of time remains for the June contract to converge with cash.
Forward contract feeder calf video sales have kicked off the third week of May with a portion of producers pulling the trigger earlier than normal, capitalizing on the current market and offsetting risk.
Fall delivery calf prices are showing breakevens calculated against the current record-high cash fed cattle market.
CME live cattle contracts for next spring are nearly $30 per cwt behind today’s cash, which suggests buyers are both “betting on the come” and planning to add significant cheap gains to back up total cost.
More on price spreads
In April, this column discussed the notable shift in the spring Choice-Select price spread as the Choice premium dropped to nearly zero dollars per cwt in spot market pricing.
The trend has extended into May with the spread remaining well below $5 per cwt with numerous excursions with the Select cutout becoming premium to Choice.
Market analysts have appropriately focused on the rapid decline in Select carcasses, dropping from 12 percent of the fed cattle mix in December to average just eight percent since February.
This historically small Select share has created a scarcity in the category compared to the lower one-third Choice price, which is literally what’s left in the Choice box after Premium Choice brands like Certified Angus Beef (CAB) have been marked up for a premium end point.
When considering the higher Select value, this year’s exceptionally small cull cow harvest is also important and domestic ground beef demand is quite strong, with more than one-half of beef consumption in this category.
It’s clear the cyclical trend of cow harvest has been closely aligned with the fluctuations in the Choice-Select price relationship. As cow harvest declines the value of lean, Select end meats increases as those cuts become attractively priced in relation to lean cow cuts.
It’s a simple substitution effect as 90 percent lean trim inflates in value under supply constraints.
Since the majority of imported beef is lean trim, destined to be ground and blended with 50 percent domestic lean trim, there is a clear relationship. As Select carcass supplies have declined, the imported tonnage has increased to replace tonnage while the market seeks to maintain balance in lean beef supply.
Paul Dykstra is the director of supply management and analysis at CAB. He can be reached at pdykstra@certifiedangusbeef.com.
