17 May 2010

5 minute read

North America

Supply and Demand Support Cattle Prices

All market classes of cattle have rebounded nicely over last year’s depressed levels. Fed cattle and cow prices are leading the way at almost 20 per cent above last year followed by feeder cattle and calves showing 10 to 15 per cent gains. One or both of two things had to happen for cattle prices to move higher. Demand for beef had to increase and/or beef supplies had to decrease. Both have happened in 2010. Since about half of the beef consumed in the US is eaten away from home, strong beef demand is dependent on the restaurant trade. For the first time in almost three years, the March 2010 National Restaurant Performance index, an industry barometer of food service business, rose above 100 signaling expansion. This welcome return of restaurant business has been supportive to wholesale beef and fed cattle markets.

On the beef-at-home front, after a harsher than normal winter in several regions of the country, consumers have anxiously kicked-off the grilling season. Retail purchases seem to be anticipating a strong Memorial Day, Father’s Day, and July 4 demand. Ground beef sales have been particularly strong and have buoyed the cow market. Wholesale fresh, 90 per cent lean, boneless beef prices are over $20/cwt. higher than last year at this time. Lower pork supplies and sharply higher hog prices are also stimulating beef demand. International trade has been an important player in the cattle price rally. So far this year, beef exports are up 24 per cent and imports are down 23 per cent. Chuck and round primals that produce much of the beef demanded in the export market have increased over 20 per cent in value. The US Meat Export Federation has indicated that short ribs, a preferred cut in key Southeast Asian markets, have increased over 50 per cent in value and are adding as much as $15 a head to fed cattle prices. Russia has also showed a strong interest in US beef this year.

Imports of grinding beef have been off almost 25 per cent in 2010. Imports from our leading suppliers (Australia, New Zealand and Uruguay) are off by double digit amounts. The decline in value of the US dollar relative to those countries where we get beef has made our market less attractive and other markets more lucrative. That is particularly the case for Uruguay.

Hide and offal values have also soared from last year’s very depressed levels with the return of export business. The byproduct value (live steer basis) has climbed to near $11/cwt. from last year’s low near $6. Prices of hides and inedible and edible tallow have nearly doubled with the return of worldwide leather demand and an increase in energy prices. Feeder cattle prices have been positively impacted by higher fed cattle prices, the best pasture and range conditions in over 10 years, and moderating corn prices. US beef supplies have been declining as beef cow herd liquidation has taken place. Beef production was down over two per cent in 2009, and is expected to decline about 1 ½ per cent in 2010. Cattle on feed numbers were lower than the previous year in 10 out of 12 months in 2009, and each month so far in 2010. Lower carcase weights in 2010 are also supporting prices.

So, market fundamentals still do drive prices. But keep in mind that world economic conditions are volatile. Even though prices have increased and current fundamentals are positive, price risk management should be considered in marketing plans.

The Markets

The fed cattle trade started early last week at steady money and then turned higher by midweek. The 5-area fed steer price on a liveweight basis increased $1.22 to $99.52 and advanced $2.51 on a dressed basis to $160.29. Choice boxed beef also gained 63 cents for the week to close at $170.71. Feeder cattle and calf prices were mixed with a seasonal clean-up trade in Montana, and limited receipts in Nebraska. Good receipts of feeder cattle coming off winter wheat pastures in Oklahoma sold lower early in the week, but recovered to higher levels by mid-week. The corn market in Omaha on Thursday advanced slightly to $3.57, but 10 per cent below last year. DDGS prices in Nebraska gained $4 a ton to $106.10 and WDGS advanced 40 cents a ton to $37.10.