Outside of the Memorial Day week, latest total federally inspected cattle harvest has been robust in the past month. Given that packers remain deeply in the red and carcass cutout values continue to move sideways, this constitutes a brisk production pace.
Cash fed cattle prices continue to shrug off weaker than expected end-product values as supplies remain in tight hands. Despite volatile CME Live Cattle futures prices, cattle feeders proceed with levity, reluctant to allow price slippage in favor of letting their show-lists ripen. Just as it seemed that June Live Cattle would never converge with cash, this week’s early trading activity has quickly removed the price difference.
With cutout values accounted for, market fundamentals have called for no major price moves. Spring grilling demand is largely complete as hotter temperatures have arrived in time for Father’s Day and Independence Day holiday buying.
A resurgence of rib and strip loin demand in June has injected a dose of optimism in the high-quality carcass market. Middle meat steak cuts command the largest quality-based price premiums across the carcass, generating a spike in quality-based premium spreads as these items gain market demand.
Implications of Heavier Finished Weights
Unprecedented annual increases in carcass weights have caused many in the cow-calf sector to question the logic behind the trend. It’s reasonable, given that steer carcass weights are 82 lb. heavier, year to date, than they were just three years ago.
At the core of the issue, the dip in fed cattle supplies has encouraged packers to accept heavier finished weights, underpinning production tonnage. As well, what was deemed “mismanagement” of cattle during the peak COVID period in 2020 served as an entry point to what would become the new norm. The supply chain discovered that end-users and consumers would continue to demand beef, despite increasingly larger portion sizes. Widespread incorporation of the latest beta-agonist feeding technology, coupled with historically profitable feeding margins (cheap corn prices), added further feedlot motivation to pursue more weight on an ever-increasing cash market.
From a cow-calf perspective, questions linger surrounding consequential cattle feeder expectations necessary for feeder cattle to perform up to the latest trend. If bigger is better in the feedlot, doesn’t this beg the cow-calf operator to modify genetics toward larger mature size? Current cattle economics suggest this is true, at face value. Feeder cattle bred to achieve heavier finished weights while remaining at average USDA Yield Grade 3 are worth more. In fact, this has always been the case when the cost of adding an additional pound of live weight has been cheaper than the sale price per pound. The math is simply more pronounced when the feeding margin is well above $1/lb, as it has been for a multitude of months now.
Let’s consider the buy-side of the equation from a feedyard perspective. If, upon purchase, a cattle feeder had perfect knowledge of potential future growth and mature weight of a set of 750 lb. feeder calves, the math suggests several outcomes. The simplistic math in the chart, not accounting for declining marginal feed conversion, shows the potential breakeven purchase price for feeder steers obtaining various finished weights. Resulting prices represent an astonishingly wide range of appropriate prices, with heavier finished weights advantageous, below a threshold of too many discounts for heavy carcasses.
Cow-calf producers are then left with the conundrum of how to proceed with their genetic input decisions. Are there premiums in the market for calves known to reach heavier out-weights? If so, should sire selection adjust to pursue this overriding trend in the market?
The answers to these questions are never easily arrived at. It’s certain that feedyards are following the profit equation to heavier weights. Even so, the cow-calf operator needs to weigh the economics of cow cost (unit cost of production) against a market theme that may or may not reward calves bred to achieve heavier finished weights.
Genetic diversity within the Angus breed, coupled with advances in genetic technology, have given producers the opportunity to select for improvement amidst antagonistic traits. The most evident example of this is the continued spread that exists between moderate birth weights and heavier weaning and yearling weights. Producers have never been more equipped to tackle both terminal and maternal traits of importance. The key is likely to measure the value of any directional changes alongside the potential that current trends in customer demands may evolve in a different direction in the near future.
