Weekly US Cattle Outlook - Choice Beef Prices in June Up

US - Weekly Cattle Outlook, 25th July 2008 - Weekly review of the US cattle industry, written by Glenn Grimes and Ron Plain.

28 July 2008

4 minute read

North America

Ron Plain

Choice beef prices in June were up 1.3 percent from May and up 1.0 percent from June of 2007. For January-June, Choice beef prices were up one percent. The inflation rate for all good and services was up 4.2 percent for January-June of 2008 from 2007.

The total marketing margin for January-June of 2008 was up 4.4 percent from 12 months earlier. The processor-retailer margin for January-June was down 7.9 percent from a year earlier. The beef packing industry has overcapacity for the current supply of slaughter-ready cattle. Therefore, they are operating with weak margins.

Live fed cattle prices in June were up 6.7 percent from June of 2007; but for January-June, live fed cattle prices were down 0.9 percent from 12 months earlier.

Cow slaughter under Federal Inspection for the year through the week ending July 5 was up 6.3 percent from a year earlier. Dairy cow slaughter was up 1.9 percent and beef cow slaughter was up 9.5 percent from 12 months earlier for this period.

For the four weeks ending July 5, total cow slaughter under Federal Inspection was up 13.4 percent from the same period in 2007. Dairy cow slaughter was up 6.9 percent and beef cow slaughter was up 17.7 percent for these four weeks compared to 12 months earlier. Slaughter suggests the cow herd in the U.S. is being downsized and has increased the rate of reduction this summer compared to the year to date.

The July 1 cattle inventory will be released at 2:00 P.M. central time this Friday. We expect the total cow herd to be down a little less than one percent from a year earlier. The bottom line is that feeder cattle prices --- even though they are down from the high --- are still quite strong and cow-calf producers have not been stressed financially enough to reduce the cow herd at a rapid rate.

If the cow herd is as large as we believe, the 2008 calf crop will likely be down only slightly from a year earlier and cattle slaughter will be close to a year earlier for the next 18 months. Therefore, the prices for live cattle in the futures market look high to us.

Beef prices at wholesale were pushed lower again this week with Choice beef down $10.89 per cwt Friday morning compared to a week earlier at $158.57 per cwt. Select beef at $152.84 per cwt was down $8.50 from seven days earlier.

The weighted average price for negotiated cattle live for the five-market area at $95.00 per cwt was down $2.23 per cwt through Thursday afternoon compared to a week earlier. The weighted average negotiated carcass price for the five-market area through Thursday at $151.00 per cwt was down $3.27 per cwt from seven days earlier.

Feeder steers and heifers were $1-3 per cwt higher. Steer and heifer calves were steady to $2 per cwt higher than a week earlier at Oklahoma City.

The range in price by weight groups for medium and large frame Number One steers at Oklahoma City this week were: 400-500 pounds $122-137 per cwt, 500-600 pounds $112-128.50 per cwt, 600-700 pounds $111-117 per cwt, 700-800 pounds $110-114 per cwt, and 800-1,000 pounds $104-110 per cwt.

With the lower wholesale beef prices, the trade for fed cattle was slow to develop as packers tried to keep fed cattle prices in line with product prices.

The trade estimate for June 1 cattle on feed is for a 4.5 percent decline of number on feed. Placements during June were estimated to be down 8.2 percent and fed marketings down five percent. The trade estimates for all cattle and calve on farms and ranches July 1 is to be down 0.7 percent.

Slaughter this week under Federal Inspection was estimated at 668 thousand head, down 0.1 percent from a year earlier.

The July 1 Cattle on Feed report came in close to trade expectations. The number on feed was down 4.1 percent, the placements during June down 7.8 percent, and fed marketings down 7.8 percent. The trade estimate was for the number on feed to be down 4.5 percent, placements down 8.2 percent and marketings down 5 percent.

Producers are reducing the cattle herd but at a very slow rate. Total number of cattle and calves on farms and ranches July 1 was down 0.5 percent, the number of cows and heifers that have calved was down 0.2 percent, and the 2008 calf crop was down 0.3 percent.

A calf crop down less than one percent points to cattle slaughter in 2009 to be within a few percent of 2008. The futures market for live cattle continues to look high for 2009.