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CME: Futures Fall as Wholesale Prices Rise

13 May 2013

US - As holidays approach, quality cuts are being sought after, pushing wholesale beef to all time highs, but live and feeder prices have shown sharp declines, according to this report by Len Steiner and Steve Meyer.

Live and feeder cattle futures declined sharply on Wednesday even as wholesale beef prices recorded new all time heighs. The nearby June live cattle contract settled at $120.2, 63 points lower than the previous close. August live cattle at $120/ cwt were down 105 points, establishing a new contract low.

Feeder cattle futures also have continued to lose ground even as lower grain prices should theoretically make them more valuable. At this point, market participants continue to show a profound lack of confidence in the beef market for later in the year and in 2014, the flip side of where they were only six months ago (remember $138 April cattle back in December).

Yesterday’s action (which spilled over in overnight trading as well) indicates that the market believes the rally in boxed beef values will likely be short lived. The choice beef cutout has finally broken through the $200 level and last night it was quoted by USDA at $204.67/cwt, about $13 or 6.7 per cent higher than a year ago.

The select cutout has also gained ground but the year over year price increase has lagged the gains in choice. The select cutout closed at $190.63/cwt, up 2.5 per cent from a year ago. The big gains in the choice cutout have for the most part been driven by middle meats.


With Mother’s Day weekend coming up and Memorial Day weekend three weeks from now, retailers and foodservice operators have increased their features of high quality beef cuts. The choice rib cutout currently is running 12.2 per cent above year ago levels while the loin cutout is up 11.9 per cent from a year ago.

On the other hand, the chuck cutout is up just 4 per cent while the round cutout is at the same level it was a year ago. Export business has contributed only modestly to the current rally, with items that
benefit from exports (brisket, short plates) up about 5 per cent from a year ago.

The rise in middle meat prices has helped heal packer margins in the short term and supported high cattle values. Live steer prices in some parts of the country were above $130/cwt in early May.

But what happens to middle meat prices and the overall cutout for that matter when Memorial Day features disappear and retailers once again go back to featuring less expensive proteins. Last year, the cutout help up well into June but then dropped by almost $20/cwt in July, pulling cattle down with it (see bottom chart).

Currently futures seem to be pricing a similar decline in cattle and beef values. Higher placements of heavy steers in March also have weighed on the August contract, which touched contract lows last night and was below $120/cwt in overnight trading.

Will this year be a repeat of a year ago? In part it will depend on foodservice business this summer. So far restaurant traffic has been quite poor, especially in QSR restaurants. One thing that will provide some support to the cutout this year is the improvement in the value of 50CL beef trimmings.

Fat trim accounts for about 10 per cent of the meat coming from the carcass and at this point 50CL beef is trading about 25 per cent higher than a year ago. It is likely that 50CL prices in July will be as much as 50 per cent higher than a year ago (last year 50CL dropped below 50 cents).

Finally, beef exports will remain critical. Sales to Japan have been good but other parts of Asia are not performing as well. Exports to Canada will likely remain high, as some of those extra cows slaughtered here go back in ground beef chubs.

In all, the market is pricing a summer swoon for beef prices, similar to last year but weather, exports and foodservice business remain key wild cards that could help support beef prices into the summer.

TheCattleSite News Desk

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