The market took a normal seasonal downturn into September following the Labor Day weekend pushing the question of demand and the opportunity for seasonal strength in the fourth quarter to the forefront. It’s been said, the beef industry is getting to the point of “pushing the envelope” regarding retail demand. That remains to be seen.
One issue that is beginning to dominate the conversation is that live weights are hovering near 1,600 lb. for some cattle and days on feed are pressing against the 200-day figure. It might not make sense until we consider quality grade and the cost for each additional pound relative to the market, even in the face of declining feeding efficiency as those cattle get heavier. At any rate, the grids are paying the bill – but for how long. Well, that goes back to beef demand.
A second issue is feedlot break-evens. In the latter half of August and September, feeding margins improved with lower feeder cattle prices. By then, feeder cattle prices were down 7% from July through early August, which reduced break-evens from the mid-$180s to the low $170s per cwt. Those September cattle expected to be finished in March present an opportunity to bring margins back over $200 per head.
Last, but not least, the Federal Reserve lowered interest rates by 50 basis points with further cuts expected. That’s positive on the cost side as well.
