CAB Insider: Weather Impacts Continue and Quality Spreads Disappoint

A fed steer in a feedlot.
A fed steer in a feedlot.
(Wyatt Bechtel)

With the passing of Memorial Day and the unofficial start of summer upon us, sellers of highly marbled, finished cattle are wondering where the demand is. The hard truth is that rib and loin middle meat demand has just not driven a price increase and quality grade spread explosion this season as it has in recent years. No doubt, a lot of product has been booked in the past few weeks but it has gone out the door at lower than anticipated prices, especially as far as middle meats are concerned. A look at the ratio comparing the CAB rib primal, properly weighted, to the total CAB carcass cutout shows that the ribs are not upholding their premium price proposition in May compared to the past two years.

The loin primal, also currently under price pressure, experiences more erratic spring patterns but showed a peak cutout contribution the first week in May and has dropped off in following weeks.

Delayed widespread warmer grilling temperatures in the U.S. is one plausible factor in the currently softer spot middle meat market (versus 2017 and 2018) with many areas experiencing continued stormy and wet weather.

As well, total beef supplies are strong with a larger cattle availability coupled with higher CAB acceptance percentages, bringing the certified head count for the past six weeks to +7% over a year ago.

The $21/cwt. Choice/Select spread and $10/cwt. CAB/Choice spreads shown in the “year ago” data in the Market Update are much larger than today’s cutout spreads. Fed cattle marketers are settling for an uptrending, but not robust, Choice/Select spread over $11/cwt. last week, up to $13/cwt. at this writing. The CAB grid pricing average is also lower in the USDA data with an average just under $3/cwt. premium to Choice last week. With all of this said, this week’s market brings a CAB steer carcass weighing 860 lb. to a $60/head premium above the regional weighted average carcass price on a simple quality-based grid. Hopefully, from a cattlemen’s perspective, there remains some fire in the grilling season demand to ramp up the spot middle meat markets.

Market Update

Several weeks of large federally inspected harvest head counts leading up to the Memorial Day holiday gave way to last week’s smaller than anticipated 641,000 head total. Spot market fed cattle prices continued to slide but were mixed with the southern region on the lower end of the range at $114/cwt. Iowa feedyards benefited from a more limited finished cattle supply, picking up $117/cwt.

The May 1 Cattle on Feed Report, published Friday, was more bullish than anticipated as the April placement number came in 9% larger than a year ago, but still at the low end of analysts’ guesses. The fed cattle marketing rate for the month was aligned with expectations at 7% larger than a year ago, while the May 1 “on feed” number was up 2% over last year, the largest May total on record.

Positive news on the international trade front came last week, as Canada and Mexico lifted tariffs against U.S. pork and beef, in response to the U.S. lifting tariffs against metals in those countries. These actions are viewed as a step closer to ratification of the US-Mexico-Canada Agreement and good for U.S. protein trade.

Japanese officials also declared the acceptance of U.S. beef from cattle older than 30 months, which will prove beneficial to that older class of cattle; several whole muscle cuts and variety meats can now be exported. Despite these announcements, Live Cattle futures refused to react in any measurable way as Friday’s Live Cattle futures closed below the prior Friday’s close.

Boxed beef cutout weekly averages were slightly lower due to choppy demand, but there was a strong finish to end the week. Middle meats are posting unseasonably lower prices, led downward by the loin complex with discounted prices on short loins, strip loins and tenderloins. Ribs were under less pressure but still showing slight declines.

End meats fared a bit better with unchanged to higher values on chuck items. Even so, most recent pricing on the chuck value steaks, Teres Major and Flat Iron, are unimpressive to start grilling season.

The positive spin on the boxed beef market is that buyers stepped in at these prices two weeks ago with load counts spiking above year-ago levels. Recent volume activity has been primarily for forward delivery as 0-21 day delivery sales for the week of May 13 were below last year’s totals, but 21-day and longer deliveries improved dramatically.

Planting Delays Impact Cattle Outlook

In keeping with the theme of weather impacts on beef, take a look at one of the most dynamic factors in the cattle market over the last week: corn prices. While no update is necessary for the vested cattle feeder, several folks on the end user side have questions about the current inflation in corn price. According to CattleFax last Friday, 49% of the nation’s corn crop had been planted, compared to 81% last year and 80% for the five-year average. The days following Friday’s estimate provided little relief as rain and storms remain active through mid-week across important corn growing areas. The four states lagging the most are, in ascending order, Illinois, Indiana, South Dakota and Ohio.

The corn market has blown up on the planting delays with the spot July corn futures running up 69¢ higher from the contract low $3.51/bu. on May 10th to this Wednesday’s trading range near $4.20/bu. The impact to cattle feeders’ ration cost projection varies across regions and scenarios but the “back of the napkin” math suggests a potential $70/head increase in total feeding cost for 200 days on feed. On a 7-weight steer this may equate to nearly 10¢ increase in cost of gain. Many feeders had been keen to the early May discounted corn prices prior to the planting delay and had locked up corn needs for the near term before the run-up. Unfortunately, the outlook for the current spring-born calf crop just became dimmer as feedlots will have no incentive to pay prices on par with a year ago moving into this summer and fall.

 

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