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CME: Fed Cattle Prices Hold Together Better Than Expected

27 September 2018

US - Fed cattle prices have held together much better than expected in recent weeks despite a notably larger supply of cattle on feed, reports Steiner Consulting Group, DLR Division, Inc.

The latest USDA Cattle on Feed report said the on feed supply as of 1 September was 5.9 per cent higher than a year ago. The supply of cattle that had been on feed for at least 150 days was estimated at just a little over 2 million head, 32.7 per cent higher than a year ago.

Despite the larger numbers feedlots have been able so far to hold the line in terms of pricing. It helps that both domestic and export demand remains on a very solid footing. Sure, the price of beef cuts that compete directly with cheap pork and chicken at retail has struggled.

The value of the round primal is currently down $12/cwt or 7 per cent compared to a year ago and the value of the chuck primal is down $4.7/cwt or 3 per cent. But what packers have lost in terms of end cut value they have more than made up in the middle meats.

Robust export demand continues to underpin brisket and plates. The value of the rib primal was last quoted at $366/cwt, some $49 or 15  higher than a year ago, the value of the loin primal was 9 per cent higher while plate and brisket primals were quoted 15 per cent and 11 per cent higher than a year ago, respectively.

The choice beef cutout was quoted last night at $205.73/cwt, 6 per cent higher than a year ago. Fed steer prices last week traded around $174.5/cwt dressed and $111 live, about 5 per cent higher than a year ago.

 

Packers have paid more for cattle because they can afford to do so. The key in our mind are middle meats. As long as you can keep them moving at decent value, the packer will keep bringing cattle in and run shifts on Saturday. As we noted in a previous DLR report, foodservice business has improved significantly this year and foodservice dollar sales are up some 9 per cent compared to a year ago.

Packers have bought fewer cattle on a forward basis and this has helped bolster the number of cattle traded in the spot market. This can be good or bad, depending on how beef demand holds together. The latest weekly data shows that as of 24 September packers had bought 167.983 head for October delivery.

This compares to 221,041 head that were purchased at this point last year and 227,684 head in 2016. Packer gross margin for last week is calculated at $364/head. Assuming a $200/head needed to break even net margin calculates at a very attractive $164/head and about $10 higher than last year.

To calculate this we used an average cutout value of $202/cwt from the comprehensive cutout and $174.65/cwt dressed cattle price from the comprehensive cattle report. By product value for last week was $9.17/cwt live or $125/head, down $23/head compared to a year ago. Weak hide values continue to negatively impact the drop credit.


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


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