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CME: Live Cattle Makes Gains Friday Following Tyson Zilmax Decision

13 August 2013

US - Live cattle futures consolidated their gains on Thursday after a surprise announcement by Tyson to suspend purchases of cattle fed with the additive Zilmax, write Steve Meyer and Len Steiner.

Futures were generally steady to lower in overnight trading, however, as market participants balanced the bullish implications of reducing the use of a powerful weight promotant vs. the lackluster performance of wholesale beef prices.

The choice cutout closed on Thursday at $188.31, 35 cents lower than the previous day but still about 3.2 per cent higher than a year ago. Futures continue to maintain a significant premium for forward cattle, a function of expected seasonal improvement going into the year holidays and lower slaughter and smaller beef supplies.

For those that don't spend their time looking at the cattle balance sheet, consider that total slaughter in Q2 was roughly 8.325 million head, about the same as a year ago. By Q4, slaughter is expected to be around 7.8 million head, 5.7 per cent  lower than the previous year.

Both fed and non-fed cattle slaughter is expected to be lower later in the year. Cow slaughter is currently running modestly below year ago levels but improvement in the milk-feed margins should limit the number of dairy animals coming to market.

Lower feed costs and a rebound in calf values also should encourage producers to reduce the number of beef cattle they send to market, especially given the big increase in cow numbers coming to market in the first half. 

The choice beef cutout has declined sharply after hitting its annual high in mid May. So far wholesale beef prices have for the most part followed the seasonal trend towards lower prices in late July and August.

The cutout likely would have been lower had it not beef for generally good demand for ground beef.

The price of fat beef trimmings (50CL) continues to outperform forecasts and it has provided significant support for overall prices. Keep in mind that 50CL beef is about 10 per cent of the overall carcass and the improvement in the price of 50CL beef has added about $6.5/cwt. to the value of the cutout.

Packers continue to struggle with weak demand for rounds and chucks, which is not all that unusual for this time of year. It remains to be seen how demand for these items develops in the coming weeks.

They account for almost half of the carcass and packers will have to put more money on them if they have to pay more money for cattle in the fall and winter. Normally that is the case but there will be some consumer pushback, especially in light of expected lower pork and chicken prices.

 

 


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