2019 Beef Cutout Ratio Suggests $136 Fed Cattle

.
.
(.)

If the 2019 ratio between wholesale beef prices and cash fed cattle prices existed today, cash cattle prices would be $136 per cwt. That would amount to an additional $252 for a 1,400-pound fed steer.

Unfortunately for cattle feeders, cash fed cattle prices are not tied to USDA’s reported boxed beef prices.

Altin Kalo, chief economist at Steiner Consulting Group, analyzed the relationship between USDA’s reported Choice boxed beef prices and fed cattle prices, developing a ratio of the market’s past performance. Kalo notes that a sizeable portion of the supply of hogs is priced off the pork cutout and examined how that might apply to cattle. However, he also notes cattle prices do not have a strong relationship to beef values, and in recent years the industry has seen fed cattle values and wholesale beef prices diverge.

Kalo’s analysis found that between 2010 and 2016, fed cattle prices and the Choice cutout were extremely well correlated, with the price ratio of fed cattle and the Choice cutout at 1.61. Using that ratio today would translate to a cash fed cattle price of $161 per cwt.

“Clearly,” Kalo said, “that price relationship was not sustainable. Over time it resulted in a reduction of processing capacity. Packers do not close plants lightly and the margin pressures during that period were significant.”

Beginning in 2018, the relationship between the cutout and fed cattle values shifted.

“Fed cattle supplies slowly started to increase at a time when beef demand was also on the upswing and packers started to bump up against capacity constraints,” Kalo said. “In 2019, the ratio of fed cattle to the cutout was 1.91, which would imply fed cattle prices at around $136 per cwt. today.”

The ratio is calculated by dividing the Choice boxed beef cutout price by the cash fed steer price. In 2020 Kalo said the ratio jumped to 2.20 but that was inflated by the disruptions in slaughter during April and May due to COVID-19. As the spread between cash fed cattle prices and the boxed beef price widen the ratio increases.

A narrower spread such as seen in the averages from 2019 result in a smaller ratio, such as the 1.91 Kalo says was present then. Dividing today’s Choice boxed beef price of about $260 per cwt. by the 1.91 ratio equals $136.12.

Wholesale beef prices have surged higher in recent days, “injecting a lot of optimism in the cattle complex,” Kalo said. “The Choice cutout at $260 in early April is not something you normally see. In the short-term packers are well covered and there are still some feedlots with long-fed cattle that they need to move. However, packer forward positions for the summer are not that impressive. If fed cattle slaughter picks up and follows the same trajectory fo 2019, it could go a long way towards narrowing the fed cattle/cutout gap.”

 

 

Latest News

Skills Survey Reveals U.S. Agriculture & Food Industry Workforce Needs and Gaps
Skills Survey Reveals U.S. Agriculture & Food Industry Workforce Needs and Gaps

U.S. employers report challenges in finding suitable job candidates with work-ready skills to fill open roles in ag. The AgCareers.com U.S. Skills Survey offers insights, data and trends to address skill development.

USDA Authorizes CRP Graze and Hay Donations to Wildfire Victims
USDA Authorizes CRP Graze and Hay Donations to Wildfire Victims

Conservation Reserve Program (CRP) participants can donate emergency grazing authority to ranchers in Nebraska, Oklahoma and Texas impacted by recent wildfires.

New Guide Helps Producers Maximize Values of Cull Cows
New Guide Helps Producers Maximize Values of Cull Cows

A new resource developed by the National Cattlemen’s Beef Association and CattleFax helps cattle producers maximize profitability from their culling decisions.

How Ranchers can Feel More Energized and Reduce their Aches and Pains
How Ranchers can Feel More Energized and Reduce their Aches and Pains

We can’t care for our livestock, resources and families without caring for ourselves first. That seems even harder during the busy seasons, but it isn’t impossible and even one thing a day makes a difference.

Profit Tracker: Packer/Feeder Margin Spread Grows
Profit Tracker: Packer/Feeder Margin Spread Grows

Last week’s rally to new record prices pushed packer and feeder margins in opposite directions. Pork producer margins continue higher with prices now above year ago.

Spring Forward Horse Health with Vaccinations
Spring Forward Horse Health with Vaccinations

As horses are exposed to the environment, wildlife and mosquitoes that transmit the five core equine diseases, it’s important to follow the core equine disease vaccination protocol.