Historical expectations for the month of April are for a decline in the percentage of cattle grading Choice and Prime. As we fully make the switch from a fed cattle supply primarily categorized as yearlings to spring-born, calf-fed cattle, we see this marked decline in average carcass marbling. We know that calf feds can outperform yearlings, depending on genetics and management, but the observation of the marketplace is that the calf-feds tend to grade less richly than yearlings. The accompanying chart shows some interesting contrasts between 2018 and last year as well as the five-year average. Recall that 2017 featured an abnormally large decline in the share of Choice and Prime carcasses in April, due to a shortage of fed cattle with enough days on feed and fat endpoint to hit even the low Choice grade. (The November 2017 decline was also abnormal but due to camera grading calibrations.)
The five-year average shows a 1.7-point decline in the percentage of Choice and Prime carcasses from the February high to the first week in April. This year saw the decline for that period at just 1.4 percentage points. For all practical purposes, the two numbers are about the same. The real question now is what will develop from here to the middle of May, the typical bottom of the spring grade decline. If 2018 plays out as normal, then we’d see two more percentage points lost in that period. It’s difficult to guess on these finite changes, and marbling trends are increasing annually at a pace that is only normal in that we continue to be amazed over the past decade. Cattle feeders expect a robust Choice/Select spread during this season of the year, some of that expectation already met with the uptick we’ve seen through yesterday. Demand for higher quality, more richly marbled beef is on a growth trend, as seen in sales of Certified Angus Beef branded product. It’s a wait-and-see scenario again this season, but the smart money might be on continued strong demand for that quality, and an impressive spread between Choice and Select product, if not quite as wide a price gap up to CAB and Prime.
The fed cattle trade last week saw an end to the precipitous price decline occurring over the previous 3-week period, when the live steer price fell from $1.27/cwt. to $117/cwt. Early week prices at $116/cwt. anchored the average on the low side, but late Friday trading activity had packers paying as much as $122/cwt. as they finally had to get competitive and fight to win bids to complete their weekly buy. When the dust settled, the average landed at $119/cwt.
The 605K head harvested last week wasn’t a terribly large count, but decent considering Saturday packing-plant shift cancellations due to the brutal storm in the Northern Plains. Even so, the total packing base is now just a bit shorter in terms of product supplies as this week develops, positioning the boxed beef price for a possible move higher. Packers will be looking to expand their daily harvest but will have to find the cattle to do so.
Steer carcass weights are 6 lb. lower in a week-to-week trend at an 872-lb. average, yet remaining 10 lb. heavier than a year ago. Heifer carcasses at 814 lb. are also 9 lb. heavier than a year ago. This has resulted in some increase in net beef supplies as a trend in 2018, but weekly harvest levels have not yet kicked up to a pace that some industry participants had expected. Total product tonnage is just 1% larger YTD than in 2017, slightly assisted by heavier weights.
Boxed beef prices were on the defensive last week with the CAB cutout down $6.70/cwt., Choice down $6.40/cwt. and Select down $7.40/cwt. The Choice/Select spread has widened a bit, increasing by $1/cwt. last week and widening to $12.50/cwt. on the USDA report Tuesday, although most product prices are lower. The Urner Barry update issued last Thursday indicates quite a bit of availability for CAB product, and we see a significant discount on rib and loin subprimals. Only two clod items from the chuck, the Flat Iron and Teres Major cuts popularized in the last couple of decades, led a small but positive price movement, along with outside skirts, ground round and ground sirloin. Those outside skirts, by the way, are currently near their 2017 price peak, set last June at $7.90/lb. As far as bargain hunting is concerned, look at the peeled tenderloin priced at $9.82/lb.: that’s $1.28/lb. below last year at this time and $1.45/lb. lower than two years ago.
Is This Rebound 'For Real?'
Last Friday’s active and higher fed cattle market creates a nice spike in the fed steer price trend line. Looking forward it would appear that tight fed cattle supplies in the north are already a factor and the punishing storm late in the week didn’t help prospects for packers looking to increase harvest head counts moving right into grilling demand season. The market is tenuous this time of year in any case, with cash marketers praying for a spring rally. The cattle on feed and placement reports we’ve seen for months foretold the larger finished cattle supplies coming to us later in the second quarter. In the meantime, the week to week supply is all that matters to the feeder with cattle to sell on the open market. The rally in fed cattle prices started at exactly this time last year and if it’s going to happen, now is most likely the time. The uninitiated spectator may suggest “bring on the rally!” while the sage feeder is left to wonder, “Is this for real?”