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CME: Slowdown in Cattle Slaughter During W45/2017

14 November 2017

US - We had some feedback from readers last week concerning the summary of projections for beef and pork supplies/prices in 2018. We want to stress that those projections are from USDA, they do not reflect our personal opinions on this topic, says Steiner Consulting Group, DLR Division, Inc.

The monthly WASDE report is widely read by industry and market participants and thus we think it is useful to recognize expectations for next year and observe how those expectations shift as more information becomes available over time. Given that we see the DLR as a public forum, we plan to continue to provide data and information that is publicly available and easily verifiable.

Supply summary for the week:

Cattle slaughter slowed down last week but it remains above year ago levels. Preliminary data from USDA indicates that fed cattle slaughter was just under 500,000 head, 2.5 per cent higher than a year ago.

In the previous four weeks fed cattle slaughter averaged 3.7 per cent above year ago levels. Higher front end supplies are expected to maintain fed cattle slaughter above year ago through the end of the year and in 2018.

The recent increase in the price of fed cattle likely encouraged feedlots to slow down the pace of marketings in order to put more meat on the carcass. However, fed cattle futures declined as much as 5 per cent last week and they are down again as we write this report.

This may change how feedlots approach their marketings towards the end of the year. There is little to indicate that the seasonal demand for beef going into the holiday has changed. The price of ribs continues to track higher and the spread between choice/select is seasonally increasing.

Last year, the spread of choice/select beef for Q4 peaked at around $17/cwt. On Friday USDA quoted the value of the choice cutout at $213.85 vs. $194.51 for select, a spread of over $19/cwt.

But before we make too much from this keep in mind that choice beef far outperformed select during Apr-Jun, when the spread was over $30/cwt, about $5 higher than the previous year and double the five year average.

US beef demand has improved overall, especially demand for high quality beef. This becomes most apparent during key holiday periods when retailers and foodservice operators have to compete fiercely.

The choice/spread collapsed after holiday needs were filled and approached zero in early September. We suspect a similar pattern will play out in Jan/Feb.


Daily Livestock Report - Copyright © 2008 CME. All rights reserved.


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