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US Beef Prices Fall Again

02 October 2015

US - Nearby fed cattle prices were down sharply once again on Wednesday on reports of much lower prices being paid in the cash market, write analysts Steve Meyer and Len Steiner.

The USDA Daily Direct Slaughter Cattle Report reported cash cattle traded on a live wt. avg. basis at $117.76/cwt while the delivered dressed price was reported at $188.64. Using the quoted 64 per cent dressing percentage this would be the equivalent of $120.7 delivered.

Live fed cattle were trading in the low 130s just a couple of days before and reports of dramatically lower prices paid days before the contract became eligible for delivery certainly caused a lot of scrambling among traders.

Cash fed cattle prices are now down $26.cwt in the last 30 days alone. You have to go back to December 2013 to find a bigger 30 day decline (that one was caused by the discovery of the first case of BSE in the US).

At this point there is a lot of consternation that front end supplies are quite burdensome and higher slaughter will be needed to clear up the backlog.

As we have mentioned before, it is one thing to ramp up slaughter going into Memorial Day and quite another to increase cattle slaughter in the weeks before Thanksgiving. In the very short term, it will be difficult to get retailers to feature more beef. Soon enough the meat case will be filled with turkeys and hams for Thanksgiving.

Beef roasts and especially middle meats should get some support for Christmas but that demand will likely start to develop in late October and early November. At the moment, retail support will be somewhat limited and this is what we are seeing play out in the beef markets.

Prices for 50CL beef have collapsed to levels even lower than what we saw during the 2012 LFTB debacle. Round and chuck cuts are also much lower. The effect of lower round cuts is that it has started to impact pricing for lean grinding beef. At some point round cuts become too cheap and you can get a higher value throwing them in the grinder.

The price of the benchmark 90CL lean grinding beef last night dropped to $246.22. Last week it was trading around $270. This is the biggest one week drop in price we could find in our database going back more than 30 years.

Will better demand come from foodservice?

The latest data from the National Restaurant Association seemed to confirm what prices in the market are telling us. August foodservice business appeared to slow down considerably.

We have been saying for a while that ground beef business seems to be poor and this now fits with the trend in restaurant sales.

The NRA Restaurant Performance Index was reported at 101.5 (values over 100 indicate expansion) down from 102.7 the previous month. The trend in the Restaurant Performance Index has been down this summer.

The customer traffic index was down even more sharply. August reading was at 100.3 compared to 103.6 the previous month. We did not see a 3.3 point drop in the customer traffic index even during the depths of the great recession of 2008-09.

Foodservice is a key driver for the beef business and it is important to pay attention to the foodservice trends this fall and winter.

Beef accounts for about 31 per cent of the volume of meat protein sold at foodservice and ground beef is about 64 per cent of that beef volume. Fixing ground beef demand is imperative if we are to see cattle prices rebound this winter.

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