Fat Trimmings Are Behind Cutout Increase

US – Fat trimming is one reason for the climbing beef cutout prices in recent days, as slaughterers are able to bid up on tight cattle supplies.
calendar icon 1 November 2013
clock icon 2 minute read

The select cut out value is 5.7 per cent above last year’s standing and US Department of Agriculture reports posted wholesale beef prices were $204.24/cwt yesterday, $6 or 3 per cent higher than a year ago.

This is triggered by tight feedlot supplies, which CME analysts Steve Meyer and Len Steiner say is restricting beef supply, although is being countered by passing high costs on elsewhere.

“While there continues to be plenty of speculation as to how tight feedlot supplies are at the moment, so far packers have been able to sustain slaughter at levels very close to a year ago,” said Mr Meyer.

“In order to do so, however, they have had to bid up on cattle and it appears that for now, they are able to pass some of the higher costs downstream.”

Beef trimmings hit $1.14/lb on Tuesday night. This is 50 cents higher than the values at this time last year which, at around 60 cents/lb were the lowest for recent years.

Although fat content varies across cattle, cattle yield around 10 per cent far trimmings, explained Mr Steiner.

He added that this effectively values the fat price recovery at around $5 to the cutout, spread around various primals.

This is almost a replica of what was seen in 2011.

“This is the time of year when foodservice operators normally build inventories for the rush of holiday shoppers,” explained Mr Steiner. “If that is the case again this year, we could see fat trim values settle a bit lower once those inventories are built. One factor that is different this year from 2011 is that cattle supplies are expected to be a bit tighter towards the end of the year.”

Current expectations are for lower market placements in the coming weeks due to September feedlot inventories.

But he added: “Remember that placements this summer skewed on the heavy side, which means cattle will be available for marketing earlier than normal. So while fed slaughter will be lower, the expected sharp declines may not come until after the end of the year.”

Furthermore, cattle could be held longer because of the Zilmax ban and resulting lighter weights.


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