We have watched beef quality, specifically from a marbling perspective, evolve rapidly since the mid 1990s. The national average Choice grading share increased 20 percentage points (ppt), from 52% in 2007 to last year’s record high 72%. Select grade beef was just 18% of last year’s steer and heifer production volume, surprisingly to some, often surpassed in recent history by Certified Angus Beef brand production volume. A review of the 2018 year-to-date Choice trend from Nebraska packing plants reveals Choice grading carcasses are a 1.5-ppt smaller portion of the total this year than last. This could be seen as a deviation from that 10-year climb toward ever-more Choice, except it was outweighed by a 2.6-ppt jump in the state’s Prime-graded carcasses, overcoming the Choice decline for an accumulated net positive gain in Nebraska carcass quality so far this year. November 2017 brought adjustments to camera-assisted grading technology, raising questions about how that impacted the year-on-year results. Yet, improvement in the Prime grading rate came despite those adjustments, not because of them. Stepping back from what may seem as finite differences highlighted here, it may be wise to pay attention to the share of Premium Choice and Prime carcasses we’re harvesting today, and determine what share of our calf crop needs to hit those marks to bring substantial value change back to us in tomorrow’s market. Since CAB and Prime grid premiums are additive to any from the Choice price, there’s no reason to stop at the commodity Choice line.
Last week’s fed cattle market was led by very strong Live Cattle futures. Volatility played the up-and-down trends every day until a huge $3/cwt. uptrend on Friday brought the weekly aggregate increase to $4/cwt. in the nearby October futures contract. We must recognize the influence of managed money (investment funds) on the cattle feeders’ mindset. Given seasonal indicators and the downward direction of the boxed beef trade, there was no news in the fundamental market that would have projected the jump from $107/cwt. to $111/cwt., from one week to the next. Moreover, reports from the eastern confines of the major cattle-trading area of eastern Nebraska and Iowa suggest fed cattle are beginning to show extra days on feed and the consequential added external fat that brings on the Yield Grade 4s and 5s. With this in mind, I’d have suggested a steady or softer cash fed cattle price last week, just as many others had guessed. Instead, encouraged by that excitement in the futures, cattle feeders were inspired to ask for much higher prices. Packers must have needed the cattle inventory as they came to the table with bids increasing from $108/cwt. early in the week in Iowa to $111/cwt. and some higher in the south and west.
The boxed beef trade saw an expected further decline in cutout values. The CAB cutout was down $3.43/cwt. to reach $211.51/cwt., Choice declined $3.59/cwt. and Select was lower by $2.87/cwt. While these prices are lower on the week, they are 10¢ to 12¢ higher than a year ago at this time. The CAB/CH spread firmed up slightly to $8.79/cwt. while the CH/SE spread narrowed a bit to $7.13/cwt.
CAB subprimal pricing reflects the overall weaker September trend. Now that we’re in the second half of September, it’s time for spot market beef buyers to monitor it all and determine where the “fall low” price point reveals itself ahead of the fourth-quarter buying activity brining on price increases into early December. Ribeyes were cheaper at $7.90/lb. to continue a three-week downtrend. A year ago last week marked the fall low for ribeyes at $6.88/lb. and it was all uphill from that point to early December. Strip loins remain in a comfortable range and may trend sideways while top butts, tenderloins and especially tri-tips were weaker, the latter below last year at $3.43/lb. on denuded product. Sirloin flap recently spiked up to $6.10/lb., compared to $4.31/lb. a year ago. The CAB round complex found some stability after much recent discounting, firmed by prices on knuckles, bottom round flats and eyes. Chuck items were up and down on several items with primary interest in shoulder clods. Thin meats from flank steaks, skirts and briskets joined grinds as sources of the overall lower CAB cutout.
The Corn Connection
Optimism in the cattle markets is a freshly minted idea as the close-at-hand activity suggests current demand outweighs the supply outlook. While the impending Cattle On Feed Report, due this Friday, portends a September 1st figure of 5.5% greater than a year ago, the large upswing in cash cattle prices last week has cattle feeders primed for a demand-driven market. That was given credence by packer willingness to step forward and give up margin last week in favor of owning the needed cattle inventory. Much of this exuberance may be knee-jerk reaction based on futures activity, and the fact of the matter is, sellers of weaned calves in October are thinking “higher, higher” as both spring and summer 2019 Live Cattle contracts jumped to new highs in recent days, though now slightly retracted. Feedlots are emboldened with new hope to make good on their summer forward-contracted feedercattle buys through profitable hedged positions if not already locked in.
Corn cost has been a minor issue for months on end now, but the projected 2018 record harvest has further depressed the corn price—even though the world stocks projection is a net negative. Feedlot breakevens are looking better today, especially on those midsummer calf purchases, considering the deferred Live Cattle contract prices combined with a corn cost that many analysts are recommending as a “lock-in” price today.