Wholesale Beef Prices Reach Record High, Tuesday23 May 2013
US - Wholesale beef prices set a new all time record high yesterday, with the choice beef cutout valued at $210.66/cwt, $4.6/cwt (+2.2 per cent) over a week ago and $16.36/ cwt (+8.4 per cent) over year ago levels, write Steve Meyer and Len Steiner.
The select cutout also is sitting at near record levels although the gains have not been as big as in the choice segment. The select cutout was valued last night at $192.97/cwt, slightly below the previous nights close but still 3.2per cent above year ago levels.
The recent surge in cutout values has for the moment helped stop the slide in live cattle futures. The nearby June live cattle contract closed last night at $121.1/cwt, 90 points above the previous close. June live cattle futures are still trading at a significant discount to cash, which was most recently quoted by USDA at an average $125.6/cwt.
August live cattle, which last week were weighted down by the surge in heavy cattle placements, gained 123 points while December was 130 points higher to close at $125.2/cwt.
Despite the recent surge in the beef cutout, futures remain cautious about the outlook for US beef prices later this summer and into the fall. Yes choice beef prices are flying high but the increase has been driven primarily by gains in the value of high priced middle meats.
The increase in the value of the rib and loin primals has accounted for about 85per cent of the overall increase in the choice cutout value. Other beef primals are near year ago levels. It is important to keep in mind that the current cutout measures the spot price for beef.
It does not measure what all market participants are paying for their beef. The current dynamic in the market appears to be the inverse mirror of what happened earlier in the year. High forward beef prices caused a lot of end users to limit the number of forward purchases and also to alter their features/promos for winter and early spring.
As a result, the choice beef cutout struggled despite lower year/year steer and heifer slaughter numbers. After all, as packers struggled to sell a larger portion of their supply in the spot market, prices for a number of items were lower than a year ago.
The situation today presents the reverse view. Back in December and January, June live cattle futures were priced at around 132-133/cwt, a lofty price that yielded record implied summer beef prices.
By March, however, the June futures had dropped to about $121/cwt, a 9per cent decline in a matter of three months. Suddenly, if you were a retailer looking for Memorial Day features or a foodservice operators looking to provide specials for Mother’s Day, beef prices were on sale.
We think this provided the incentive to book a significant portion of the May production forward, leaving packers with less beef available to sell in the spot market. Add on top of this the pent up demand from a cold, wet winter and early spring, and suddenly those looking to buy middle meats in the spot market are finding that they have to pay significant premiums to secure product.
The reason why the market remains cautious about the outlook for beef prices out front is precisely because the current dynamic is so greatly dependent on seasonal factors.
Grilling well marbled steaks bought on sale for $6.99 on a 70 degree May afternoon sounds fantastic. Grilling $12 steaks, no longer on sale, on a hot July evening is less appealing. For now, however, beef prices are flying high, helping cash cattle as well as bolstering packer margins.
TheMeatSite News Desk