Comparing cutout values across USDA quality grades and Certified Angus Beef® brand carcasses provides the quality pricing component of fed cattle values for grid and many formula sales.
Extreme January weather conditions impacting a large portion of cattle feeding regions have been widely impactful to cattle feeders and the beef supply chain.
The onset of severe cold temperatures and snow in a broad spectrum of cattle feeding regions will pull fed cattle production down. Beyond the reduced weekly slaughter head counts, carcass weights are set to plunge.
The beef market is set to rapidly adjust to changes in consumer buying habits. This removes demand pressure from ribs and tenderloins, realigning the contribution of those cuts to a smaller percentage of carcass value.
Few things in cattle market trends are entirely predictable but the fact that carcass weights peak in November is as close to a sure bet as one could identify.
Rib and tenderloins are pricing near their annual highs, but a look at annual price trends across the beef carcass shows increasing contributions to CAB premiums from both ends of the carcass.
Cash fed cattle prices have increased 4.8% during the month of November in the past five years, yet carcass cutout values have begun the month in a bit of defensive pattern.
Shifting market dynamics are most succinctly summarized through two factors, fewer cattle and higher prices, that will further entrench themselves in near term trends.
Procurement decisions by feedyards are heavily influenced by vaccination status and current health condition. An “Industry Insights” report from CattleFax and Angus Media provides useful insight on current trends.
While the market average trading range has narrowed from the recent historically wide range, the total market average in the six-state region has priced in a fairly tight range in the low to middle $180’s since June.
America’s shrinking cow herd has generated sharp packer interest for the smaller pool of cows aggressively culled in drought regions leading to record high cutter cow carcass values.
In the second quarter of 2023, national average carcass quality grades held up especially well considering that carcass weights were 15 to 20 lb. lighter than a year ago in the first quarter.
Cash fed steer prices reached record highs two weeks ago, and the trajectory – fueled by strong demand and restricted head counts – was predestined to hit the seasonal ceiling.
Moving forward, lower quality grades in May and lighter carcass weights combined with shorter fed cattle supplies may be expected, driving premiums into the high-quality cattle and beef markets.
A broad view of recent carcass cutout values shows plenty of strength in wholesale boxed beef prices. To contrast current values to a year ago, CAB and commodity Choice cutouts are 14% higher.
As you’re contemplating the future impact of today’s genetic decisions, consider the marketability of both feeder calves and potential replacement heifer progeny.
With current fed cattle carcass weights 16 lb. lighter than a year ago marbling achievement, on average, is likely to underperform in contrast to the past two years.
From a cash price perspective, both cattle and beef markets continue on a relatively bullish run the past few weeks. Meanwhile, winter weather has hindered feedyard performance this season.
From a cattlemen’s perspective fed cattle prices have been "just good enough" since the first of the year, only showing some spark as recently as last week with the nearly $3/cwt. move.
Focusing on carcass quality can allow feeder cattle buyers to factor in higher returns based on better-than-projected feedlot performance and/or carcass quality premiums than average.
Cattle feeders capitalized on a tighter supply of market-ready cattle last week, while packers came back with sharply higher bids as they competed to own inventory needed to fulfill boxed beef sales commitments.
Today’s weekly slaughter is much more robust than in 2015 and cattle supplies are at least adequate for the short term. Yet fed cattle numbers will certainly tighten as we move into 2023 due to the shrinking cow herd.
Through a consistent premium beef experience, the CAB brand provides economic incentives to cattlemen up and down the supply chain. The brand has adjusted the hot carcass weight (HCW) maximum to 1,100 pounds.
Following beef quality grade trends may not be as exciting as college football, but for beef marketers quality grade is the game and this season is nothing short of dynamic.
Late fall holiday demand heats up the cattle market, and that’s when high-quality carcasses get extra bragging rights. Demand alone doesn’t spur prices higher, there must be a degree of supply constraint.
Even though prices have been exceptional for calves and feeder cattle, feedlot breakeven projections are rapidly moving higher, discouraging ranchers to consider retaining ownership.
More Select grading carcasses and fewer Prime goes against what beef customers desire. To offset this drop, end users have adopted a new chilling method to increase reserves before prices soar.
Reviewing cattle placement in feedlots this year suggests that fewer fed cattle supplies expected in the fourth quarter along with much higher costs of gain will hold carcass weights below a year ago.
Fundamentals for fed cattle are steadily at odds so far this summer with very “green” fed cattle in the northern tier of the feeding region. Feeders are pushing show lists to take advantage of the summer high.
Consumer concerns with inflation are quite real and retail beef values closed out the first quarter 15% higher than last year. Even so, the end user beef market has gained a widening appreciation for Prime beef.
Carcass weights in the latest USDA report for the week of May 9th show a large seven pound drop for steers and 10 pounds lighter on the heifers. This suggests currentness has picked up in the fed-cattle sector.
The cattle placement pattern beginning in the fourth quarter of 2021 shows the finished cattle supply will start to swell in June and could become a 20,000 head surplus over a year ago.
The coming weeks should fuel interest in high-quality beef cuts for grilling. As the share of harvest-ready calf-feds grows in the fed cattle supply, we anticipate seasonally lower quality grade trends.
Cattle feeders have been more willing to sell finished cattle in recent weeks since corn prices have elevated the ration cost and feed conversion efficiency decreases at the end of the feeding period.
In 2019 Certified Angus Beef reported an aggregate packer CAB premium total of $92 million. By 2021 that total was nearly double, resulting in $182 million in CAB premiums.
Quality grades set record highs for combined Choice and Prime carcasses during the first five weeks of 2022, slightly higher than last year. Prime grades are down marginally from year-ago at 10% vs. 10.8% last year.
The slaughter pace last week was the best we’ve seen in 2022, with an estimated Federally Inspected total of 659K. Given the previous week’s disappointing pace due to weather, these are very promising totals.
Considering the production factors of the past two years, it’s logical to consider that advances in carcass quality, or higher marbling scores, will be less likely to develop in 2022 than in the previous two years.
Regardless of the market examined, "uncertainty" is an accurate descriptive term. U.S. equities are unsettled despite a promised interest rate hike and that spills over to cattle and beef.
The USDA January 1 cow herd inventory, published this Monday, confirmed a 2% decline in the beef cow herd, along with a 1% decline in feeder cattle supplies.
Fed cattle markets have seen challenges in January. The Omicron variant is pressuring packing plant efficiency through increased worker absence, resulting in much smaller slaughter totals so far this month.
Cattle and beef market dynamics the past year were nothing if not volatile, and in some ways, unprecedented. Supply chain imbalances and processing sector issues have been the focal point of beef price inflation.
December has started off on a high note in the fed cattle sector and all of us on the cattle side of the supply chain should be made well aware of what’s ahead in 2022.
Packers have margin to spread back upstream to the feedlot sector at their discretion, and it appears that their need to fulfill orders for high-quality product for upcoming holidays is likely a motivating factor.