30 October 2012

4 minute read

North America

Wholesale Meat Prices

This is about the third time this year that the Choice cutout has made a run at the $200/cwt mark, Mr Anderson says. At the end of February, the Choice cutout topped out at just under $199 before sliding lower through the spring. After bottoming out in the midst of the LFTB debacle in April, the cutout rallied to just over $198 in mid-June before falling lower as summer supply pressure mounted. Following a sharp rebound in early August, the Choice cutout held fairly steady in the low-$190s for several weeks before breaking out on the most recent rally a couple of weeks ago. Will the Choice cutout finally be able to move above $200 this time?

So far this year, the market has seemed to run into considerable resistance at prices north of $195/cwt. It is perhaps notable that the Choice cutout moved to above $199 mid-week and then dropped sharply – ending the week over $2.50 off of the week’s high. To a large degree, this has been a relative price issue. Wholesale beef prices have not been able to get too far out of line with wholesale pork prices. As high feed prices led to accelerated hog slaughter this summer, large pork supplies kept pressure on pork prices, in turn limiting the upside for the beef market. As pork prices rallied in recent weeks, this relative price pressure was reduced, providing some scope for the recent surge in wholesale beef. One should be realistic about how much help the pork market can provide in the fourth quarter – a period of seasonal weakness for wholesale pork (and hog) prices. In fact, wholesale pork prices turned lower last week a couple of days in advance of the beef cutout’s decline. Accelerated hog marketings this summer may translate into a bit less fourth quarter pressure than normal, but with large stocks of pork in cold storage (up 8% month-to-month and up 28% year-to-year in last Monday’s Cold Storage report), it’s hard to argue for too much counter-seasonal price action.

Beef prices may also suffer a bit in the short run from some demand disruption. As I write this article on Monday, I am holed up in my house just a few miles off of the Chesapeake Bay in southern Maryland awaiting the arrival of Hurricane Sandy. This weather event promises to affect about 50 million consumers along the northeastern corridor. Already, schools, government offices, and most businesses are closed and will remain that way probably until Wednesday. Millions are expected to be without power for several days. In the great scheme of things, the storm probably won’t be a huge deal in terms of lasting impacts, but it will slow commerce down for several days in the largest consumer market in the country.

Taking a longer view, beef prices are almost certainly headed further into record territory over the next several months. Tightening beef – and total meat – supplies will support higher prices. This will be especially true if these tighter supplies are accompanied by even modestly better economic growth in the new year. Higher beef prices will likely be necessary to support fed cattle prices at a level that will return the feeding sector to profitability. That higher level may be tough to get to in the next few weeks, though

The Markets

Calf prices were somewhat mixed around the country last week. The national feeder and stocker cattle summary called prices from $3 lower to $3 higher in last week’s trade. Tight supplies of long-weaned calves are supporting prices on those classes. On the other hand, seasonal pressure is keeping a lid on calf prices. In parts of the country, strong demand for grazing cattle is contributing to a pretty hot market. For example, steer calves at Oklahoma City were called $2 to $6 higher as wheat pasture grazing prospects start to look up in much of the state. After a hot, dry summer, many producers are hoping to make the most of fall grazing in places where it is available. Fed cattle prices were up last week. The 5-area average was up by almost $2 compared to the prior week.