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CME: Higher Beef Prices Expected

01 May 2013

US - Cattle slaughter for the week ending 27 April was reported at 625,000 head, 1.6 per cent higher than the previous week and 1.6 per cent higher than a year ago, write Steve Meyer and Len Steiner.

The increase in cattle slaughter appears curious since packer margins continue to be constrained despite reports of improving demand and expected higher beef prices going into the grilling season. Looking at the breakout of slaughter numbers, however, it becomes clear what is driving the year over year increase in numbers.

The estimates steer and heifer slaughter currently stands at 480,000 head per week, 2.5 per cent LOWER than year ago levels. Packers continue their trend of running relatively light Friday slaughter and Saturday slaughter has averaged under 10 head the last three weeks. On the other hand, cow and bull slaughter has increased sharply (see our discussion on 4/25). For the week, total cow and bull slaughter was estimated at 145,000 head, 21.8 per cent higher than a year ago.

The sharp rise in cow slaugh- ter has dramatically impacted the value of lean cow meat coming to market, with prices for 90CL beef quoted at under $202/cwt on Friday. Seasonally 90CL beef values peak in the second weak of May as retailers prepare for Memorial Day ground beef features and foodservice demand also improves, with more people travelling and warmer weather leading to increased foot traffic in QSR establishments.

But the surge in cow slaughter has caused lean beef prices to run counter their seasonal trend and negatively impacting overall beef prices. The ch oice beef cutout was quoted on Friday at $192.89/cwt, $2.59 or 1.4 per cent higher than the same period a week ago. The select cutout is now trading below year ago levels, with the Friday value pegged at $184.43/cwt, $1.67 or 0.9 per cent lower than a year ago. Going forward, live cattle futures continue to trade in the low 120s, with only a modest increase into the fall as seasonal demand (year end holidays) and tighter cattle supplies are expected to underp in cattle and beef values.

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