16 April 2010

5 minute read

North America

Cow Prices Exhibit Strong Seasonal Strength

Cow prices were higher again last week and have increased more than normal this year in spite of historically high cow slaughter. A wide range in cow prices occur due to differing grades, yields, and other market factors (fed white- fat cows versus thin, low- yielding cows); as well as the geographic region where cows are sold. However, in general, cow prices have increased over $10/cwt. this year when a more normal increase would be $5. Prices are currently over $10/cwt. higher than last year, and have been averaging a couple dollars higher than 2008, which was a record high year.

Higher prices are being supported by strong demand for hamburger and sharply lower imports of manufacturing grade beef. The “cheeseburger price war” among several fast- food chains, that have been promoting low-priced menu items during the economic downturn, helped demand. And after a harsher than normal winter in several regions of the country, consumers have been anxious to kick-off the grilling season. Higher prices for competing meats including chicken and pork have also stimulated demand for hamburger.

Imports of grinding beef have been off almost 25 percent this year. Beef from the leading importers of Australia, New Zealand, and Uruguay are all off by double digit amounts. Australia’s beef industry is in a herd rebuilding phase after several years of drought. And, ironically, there have even been reports that too much rain in places may have hampered cattle from getting to market. The decline in the U.S. dollar relative to currencies in those countries where we get beef has also made our market less attractive and other markets more lucrative. That is particularly the case for Uruguay.

Fresh, 90 per cent lean wholesale boneless beef prices are about $15/cwt. higher than last year as retailers compete for product. Furthermore, prices for fresh, 50 per cent lean who lesale beef have also increased as carcase weights of fed steers and heifers have declined. Severe winter weather was a factor in the decline which has caused less 50 per cent trim to be available. Cow slaughter in 2010 has been close to last year’s elevated level, but almost 20 per cent above the 2004-2008 average. Beef cow slaughter has been almost 8 per cent higher, partially due to an increase in imports of Canadian cows. Dairy cow slaughter declined about 7 per cent from last year when the first of three dairy cow buyout programmes was in progress.

Looking ahead, total cow slaughter is usually seasonally low during the summer months. Several factors favor reduced beef cow slaughter, which should be supportive to prices. First, overall grazing conditions in the US for beef cattle are probably the best that they have been for several years. That, coupled with the heavy beef cow culling that has occurred in the last several years, and stronger calf prices point to reduced slaughter levels. Dairy cow slaughter is also typically lower in summer months, but was elevated last year with the buyouts. Dairy prices are still struggling, and although no buyouts have been announced, dairy cow culling could be higher than average.

The bottom line is that prices should remain strong through the summer months until the seasonal fall decline starts in September.

The Markets

The entire cattle/beef complex exhibited higher prices last week. Fed cattle continued to show seasonal strength with the 5-area fed steer price on a liveweight basis up $3.56/cwt. to $99.81 and advancing on a dressed basis $5.58 to $161.39. These were the highest prices recorded on a live basis since early July 2008. Choice boxed beef prices also gained momentum last week rallying $1.33/cwt. from the previous week to $164.80, and the Select market gained even more so the Choice-Select spread declined 34 cents to $2.27.

Demand has been robust for all classes of feeder cattle with favorable prospects for spring and summer grazing driving the lighter weights and improved profitability in the feedlot sector boosting the heavier weights. Demand for replacement quality heifers has also picked up in the Northern Plains. Both 500-600 lb. and 700-800 lb. steers were generally $2 to $5/cwt. higher. Prices for those market classes in Montana, Nebraska and Oklahoma all posted nice gains again last week.

Corn and distillers grain prices increased one percent last week, but remain well below last year’s levels. Corn at Omaha on Thursday gained 3 cents per bushel to $3.37. DDGS in Nebraska gained $1.40 per ton to $96.60 and WDGS gained 30 cents to $36.20.