CAB Insider: Forward Beef Sales Volume Sizzles

The last CAB Insider highlighted the volume of federally inspected cattle harvest in most recent weeks. An update to that data shows in the past 8-week period, excluding the holiday-shortened Memorial Day week, totals have all exceeded 650,000 head per week, averaging almost 658,000 head. The fed steer and heifer portion of the total has been running at 80% each week, resulting in a 526,400-head estimated average, approximately a 4% increase, nearly 21,000 head per week. Looking at the same 8-week period in sales, we can see that packers have done a good job of moving product through forward sales of boxed beef with delivery dates of 21 to 90 days out. Interestingly, the week of April 9th represents the largest forward sales week (1,658 loads) in the comprehensive boxed beef load count data since the beginning of our available USDA data beginning in 2014 with last week’s 1,618 load total following in a close second in both comparisons. Packers are moving through product nicely with 2nd quarter forward sales estimated larger by 27% over a year ago, indicating rapid current and near term beef movement.

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Market Update

Most fed cattle traded at $109-110/cwt. last week, down slightly from the week before. While not as wildly profitable as in past weeks, packers are still incentivized to keep harvest levels high, and there are plenty of market-ready cattle to pick from. The Cattle on Feed Report on Friday had feedlot inventories 4.1% above last year. USDA reported 11.55 million head in feedyards on June 1, 7.5% above the 5-year average. These inventory levels were slightly higher than analysts had expected, and the August Live Cattle futures contract was hammered $3/cwt. lower early this week.

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Of note, the recent Cold Storage data reported 8% more beef, pork, chicken and turkey than a year ago and 10.5% higher than the 5-year average. Beef, specifically, is 13% higher than a year ago. While these inventories contain very little Certified Angus Beef  product, they remind us how much meat is in the bigger marketplace. These inventories suggest all protein prices will stay suppressed for a while. The pig inventory report, due this Thursday, is expected to show record head counts.

With Father’s Day over and supplies abundant, packers discounted nearly every CAB primal last week. Ribeyes never experienced the big spike from last year (that was caused by marketing under-finished cattle and a resulting lower grade) and continue downward on a normal seasonal move. Tenderloins are lower and priced about $1/lb. less than the past three years. CAB ground chuck was quoted lower at $1.80/lb.—you have to go back to 2010 to find a lower price for June. These price levels may have sparked some aggressive ads for the Fourth of July. And top rounds are about 50¢/lb. lower than a handful of weeks ago, with only a 3¢ spread to Choice, and are value-p

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Calf Purchase Price Break-evens

The large video auction sales, featuring fall delivery of spring-born calves as well as shorter term delivery yearlings, kick off this week with two of the major video companies offering more than 70,000 head for sale. As we look at today’s values for feedyard input costs, along with Futures-implied fed cattle prices next spring, it’s amazing just how similar the current breakeven prices are to a year ago at this time. The accompanying tables show some assumptions for performance and costs for 650-lb. steers delivered in the fall. After accounting for feedlot performance, death loss, health and yardage. I’ve come up with an assumed cost of 78¢/lb. of live weight gain with all costs except interest. That’s just 3¢/lb. higher than what I had calculated in early July a year ago. This will obviously vary in different feedyards and cost projections. I’ve also calculated the suggested breakeven purchase price for those 650-lb. steers in two formats. The first example uses this Tuesday’s closing April Futures price as the ending value, and the second uses the discounted June Futures price. As a result, the current market implies the same 650-lb. steers placed on feed in early October are worth 14¢/lb. more than if they were delivered in midNovember at the same weight. It’s doubtful that buyers will bid the full discount for the later outcome cattle but this is the mathematical interpretation of the futures today. The better end of the Angus cattle bred with carcass traits in mind can be valued realistically at an additional $9.00/cwt. premium at the time they are purchased as calves. To do so my grid calculations would require a 50% CAB acceptance rate with 10% Prime carcasses while sorting to optimize Yield Grade 2’s at 35% and limiting Yield Grade 4’s.

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