Wednesday, May 10, 2017

Beef market analysis

Cattle Market booming: Will it last?

Parma— Feeder cattle prices have soared.

Things couldn’t be better at VL Livestock in Parma. The 7,000 head feedlot is moving cattle at a time when prices are at the highest levels in years.

“It’s the second biggest quarterly movement in beef history. The last time we saw movement like this was back in the early 80’s, We're seeing a 46-percent increase in beef prices. Last fall prices were 98-cents to a $ 1.00 a pound, they’re now $1.46,” said Joel Van Lith of LV Livestock.

Most contracts gained $9 the last week of April with prices continuing to rise.

Fed cattle prices have climbed nearly $20 per hundredweight since the start of the year. Market reports say that heavy cattle  supply means projected increases in beef production. Thats good news considering the past three years saw market prices reach historic lows. But now the fundamentals have shifted and demand is brisk.

“Will it last? I’m bullish right now because you got June futures that are at $1.27. In December it was $1.18, it’s usually the other way around. The back part of the futures already has the discount figured in. That’s what makes me bullish. it's that that discount. The Beef cutout is almost at historic highs, or not far from it,” said Van Lith.

The Cutout:
Memorial Day later this month means strong demand for barbecue meats. Retail giants like Albertsons must stock their shelves and have enough grilling supply on hand for the big holiday weekend.  This recent surge in the fed market is demand driven and cutout values are up this spring.  The cutout represents prices paid for boxed beef cuts and it’s the estimated value of a beef carcass. The USDA’s last National Daily Boxed Beef Cutout  report showed a $13 increase from the week before and $26 per hundredweight over 2016. 

“And the carcass weights are actually 25 pounds lighter than a year ago and that’s a lot of tonnage not making it to market,” said Van Lith. “Yet beef exports are 30 percent more than a year ago, All these factors mean that the economy is better and consumers across the board are willing to pay more.”

Ribeye steaks have contributed the most to the price rally, up $30 from the last week and $62 per hundredweight from 2016.  All prime cuts are up including short plates that are sold to the export markets.  Short plate prime cuts were at $172 per hundredweight last week, that’s a $13 increase over the previous week or 8 percent.  Short plates have had large gains before but this is the first time since 2015 that short plates have climbed above $170 per hundredweight.  

USDA Foreign Agriculture Service’s export data from March is now online  and reveals that exports are booming.  Total exports in March were up 25 percent over last year reaching 234 million pounds. Canada, China, Mexico, and South Korea all saw double-digit increases in exports.  

On the Fed Side:
Fed cattle markets have benefitted from this strong demand and packers have been buying cattle  aggressively.  USDA’s last Cattle on Feed report showed large markets and cattle dressed weights are also down. Over the last four weeks, slaughter steer weights are down more than 20 pounds from a year ago and have averaged 14 pounds lighter on a weekly basis since the first of the year. 

“As long as the packers are making money with low carcass weights, its all good. Fat cattle are at $1.46 and they’re still making money. The market is fantastic and if you look at demand, I think it’s going to hold on a while,” said Van Lith

Van Lith thinks that Memorial Day buying caught the retail giants short on supply and that caused a sharp spike in demand for packers. Fed Cattle prices have rallied above normal levels, showing tighter supplies. It’s telling because it shows that packers are pulling cattle through the supply chain as fast as they can to keep up with demand, and yet the number of cattle on feed is close to last years numbers along with beef production.

Will Supplies Remain Tight?
The long term trend is that beef supplies in 2017 will be up but with more cattle moving through the system.  Supply experts say there could be tight spots in cattle flow this summer.  Feedlots like LV in Parma have made excellent returns over the last several months. 

“We’re moving cattle, we’re very current and we’re still making good money,” said Van Lith

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